Fremont General Corp., a lender that regulators forced out of the sub-prime mortgage business in March, said Tuesday that it would sell its commercial real-estate loan business and bring in a high-profile new team of investors and managers to run the company.
Santa Monica-based Fremont said real estate investment trust IStar Financial Inc. would pay $1.9 billion for the commercial loan business and a 30% stake in an associated $6.5-billion loan portfolio. Fremont would earn interest on its remaining 70% stake in the loans.
Fremont's stock rocketed 41% on the news.
New York-based IStar, a commercial loan investor, pledged to retain most of the 166 employees of the commercial business, which is part of Fremont General's bank subsidiary, Fremont Investment & Loan. The Santa Monica-based commercial arm has nine lending offices nationwide, including one in Irvine.
The new management group is headed by Gerald J. Ford, a billionaire specialist in bank turnarounds who plans to invest $80 million as a first step toward eventually acquiring 20% of Fremont General's common stock.
Ford will become chairman of the parent company and Brea-based Fremont Investment & Loan, which was sunk by defaults on home loans to high-risk borrowers.
The Federal Deposit Insurance Corp., accusing Fremont of taking too many risks, ordered the company in March to quit making mortgages that sub-prime borrowers couldn't afford and to cease operating with management whose "policies and practices are detrimental."
Regulators also criticized Fremont Investment's commercial real estate operation, saying it was too concentrated in loans for apartments being converted to condominiums.
Fremont's current management, headed by Chief Executive Louis J. Rampino, declined interview requests. In a statement, Rampino called Tuesday's news "a major turning point for Fremont General."
"The transaction with IStar allows us to exit our existing commercial real estate lending business while retaining an earning asset that provides a bridge to the development of new lending businesses," he said. "The investment led by Mr. Ford will provide part of the foundation to building these new businesses."
Ford said he would refocus Fremont on conventional consumer and commercial lending, making it a "very traditional bank" like those he has operated in the past.
