2 lenders gain breathing room

But analysts said the shrinking of the so-called sub-prime loan business was likely to continue.

"This hasn't changed the operating fundamentals of the industry," said Bose George, an analyst at investment firm Keefe Bruyette & Woods in New York.

San Diego-based Accredited Home Lenders Inc. said it sold $2.7 billion of loans it had on its books, which the firm said would give it breathing room as it explored its "strategic options," including raising fresh capital.

Separately, Santa Monica-based Fremont General Corp. said it got a $1-billion credit line from brokerage Credit Suisse to help shore up its finances.

The news helped push Accredited shares up $1.47 to $10.90 and Fremont up $1.50 to $8.90.

Financial markets have been rocked in recent weeks by soaring delinquency rates on sub-prime mortgages, those made to borrowers with poor credit histories or high debt burdens.

The Mortgage Bankers Assn. this week said the percentage of sub-prime loans delinquent on payments reached 13.3% in the fourth quarter, up from 12.6% in the third quarter and 11.6% a year earlier.

Defaults at some lenders have been even more severe on mortgages made just last year, as the housing boom waned. Wall Street, which buys many mortgages for packaging into mortgage-backed securities, has dumped a large number of 2006 loans back on their originators, in turn triggering the failure of those firms.

Two weeks ago Irvine-based New Century Financial Corp., one of the largest sub-prime lenders, said it had stopped making loans because its Wall Street lenders had cut off its financing. That triggered heavy selling in shares of many other mortgage lenders, which continued this week.

Some analysts warned against making too much of the stock rallies Friday. Demand for the shares may have been coming from "short sellers," traders who had previously borrowed the shares and sold them, betting they would plunge.

With the stocks far below their levels of just a few weeks ago, those traders may have been buying shares to close out their trades at a profit.

For the week, Accredited stock was down 31% and Fremont was up 11%.