Fremont General Corporation (NYSE:FMT)
Industry: Financial
Fremont General Corporation (Fremont General), incorporated in 1972, is a financial services holding company. Fremont General's financial services operations are consolidated within Fremont General Credit Corporation (FGCC), which is engaged in commercial and residential (consumer) real estate lending nationwide through its California-chartered industrial bank subsidiary, Fremont Investment & Loan (FIL). FIL is primarily funded through deposit accounts that are insured up to the maximum legal limit by the Federal Deposit Insurance Corporation (FDIC), and to a lesser extent, advances from the Federal Home Loan Bank (FHLB). Lending Activities Fremont General's lending operations consist of the wholesale origination of non-prime or sub-prime residential real estate loans on a nationwide basis, which are primarily sold to third-party investors on a servicing released basis, or, to a lesser extent, securitized. Lending activities also consist of the origination of commercial real estate loans on a nationwide basis, which are all held for investment. The residential real estate loans originated by the Company are primarily secured by first deeds of trust. These loans have principal amounts below $500,000 and have maturities of 30 years. These loans generally are hybrid loans, which have a fixed rate of interest for an initial period after origination. The loans are generally made to borrowers who do not satisfy the credit, documentation or other underwriting standards prescribed by conventional mortgage lenders and loan buyers, such as Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac). These are commonly known as sub-prime or non-prime. These borrowers generally have considerable equity in the properties securing their loans, but have impaired or limited credit profiles, or higher debt-to-income ratios than traditional mortgage lenders allow. These borrowers also include individuals who, due to self-employment or other circumstances, have difficulty verifying their income through conventional means. The Company also originates second lien mortgage loans; these have fixed rates of interest and are primarily originated contemporaneously with the origination of a first lien mortgage loan on the same property by the Company. The commercial real estate lending operation's portfolio, as of December 31, 2005, consisted of 357 loans. Loans are primarily short-term bridge and construction facilities, which generally have maturities for up to five years. These loans include facilities for various construction, conversion, acquisition, redevelopment and renovation purposes. These loans generally involve the construction of new structures or significant renovation or alteration to existing structures; this typically prohibits occupancy or the generation of rental revenue during the transition period. The Company has had an emphasis on providing financing for various condominium conversion and construction projects. These condominium projects often contain retail and hotel components. Approximately 51% of the commercial real estate loan balances outstanding are construction loans, 39% are bridge loans, 8% are permanent loans and 2% are single tenant credit loans. The commercial real estate loan portfolio includes 15 separate loans with outstanding balances in excess of $50 million, as of December 31, 2005. Funding Sources The commercial and residential real estate lending activities are financed primarily through deposit accounts offered by FIL and which are insured by the FDIC. FIL offers certificates of deposit and savings and money market deposit accounts through its 21 branches in California. FIL minimizes the costs associated with its accounts by not offering traditional checking, safe deposit boxes, automated teller machines (ATM) access and other traditional retail services. Deposits totaled $8.60 billion at December 31, 2005. In addition, financing is available to FIL through advances from the FHLB. FIL maintains a credit line with the FHLB, which has
As Of: 10/07 00:00 ET
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