Fremont General Corp., the country's third-largest subprime lender and the originator behind the first 2006 vintage collateral to receive negative rating action, announced late last week it would delay its fourth quarter earnings announcement and annual report filing.

Fitch Ratings downgraded the subprime lender's corporate debt rating from BB-' to B+' with negative watch on the news and Standard & Poor's placed the company on a negative credit watch. The company posted dismal third quarter earnings and, subsequently, executives promised to tighten underwriting standards.

Market participants speculated that the company could be on the verge of a bankruptcy filing, while others insisted it was a takeover target. Insiders have disposed of roughly 508,000 shares since Jan. 1, while they've purchased about 8% of that, or 40,000 shares, according to Securities and Exchange Commission filings.

Fremont shares began trading down steadily in early February, falling by 35% to close at $9.10 on Thursday from a high the previous month of $14.17 on Feb. 2. Pulling what appeared to be another contrarian move to market sentiment out of its hat, Citigroup upped its share in Fremont to 5% last week. The bank earlier in the week became ACC Capital Corp.'s chief warehouse liquidity provider.

Buyback requests had been mounting at Fremont last year - so much so that the company began asking its loan buyers for a 90-day limitation to request a buyback and a 45-day extension before determining there has been an EPD. As of the end of the third quarter, buyback requests at the lender had increased to between 90% and 100% of delinquent loans from about 30% of delinquent loans in 2005, according to company executives. The loans were selling at anywhere from 50 to 85 cents on the dollar, they said.

The lender had repurchased $345.7 million worth of loans at the end of the third quarter, compared to $238.4 million in the second. The company lost $9.6 million on the sale of whole loans and securitizations of $8.15 billion, compared with a gain of $8.4 million on the sale of $9.89 billion in the second quarter. Fremont's net income declined 68% to $29.5 million or $0.39 per share in the third quarter from $92.6 million or $1.23 per share for the same quarter last year.

Fremont in February announced it would no longer originate subprime second lien mortgages, citing negative media and secondary market attention. The move was described as part of ongoing changes to the lender's underwriting criteria that were set to take place later this year. Fremont's executives said in November the lender had undergone a barrage of new policies since the defaults began to rack up. They include new underwriting criteria, notable strides in fraud protection, oversight of those involved in originating the mortgages - from several new mortgage broker scoring initiatives to using licensed reviewers on a greater number of appraisals - and added scrutiny for so-called high risk loans. The company said at the time the changes had resulted in a 40% drop in first payment defaults.

Specifically, Fremont company executives had said 80/20 combo products offered to borrowers with a FICO score below 640 were among the worst performers, and that the offering was eliminated. Borrowers with a credit score of 600 and above could still get the product, pending full documentation, they said. First payment defaults on the combo loans reached a high of 5.8% in the second quarter at Fremont, according to third quarter results.

Marking the first negative rating agency efforts toward 2006 collateral, Moody's Investors Service on Nov.10 put on watch for downgrade the two lowest rated tranches of SG Mortgage Securities Trust 2006-FRE1.

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