The Boston Globe reports Massachusetts Attorney General Martha Coakley has entered into a settlement with Fremont Investment & Loan and its parent Fremont General Corp. over its subprime lending practices.

“Fremont has agreed to pay the commonwealth $10 million in consumer relief, civil penalties, and costs,” Coakley’s office said in a press release. “Fremont has also agreed not to foreclose upon unfair loans without certain protections for borrowers or originate unfair loans in the commonwealth.”

The Globe’s online story said attempts to reach Fremont for comment were not immediately successful. Read more on the Globe’s site HERE.

Fremont General filed for bankruptcy protection last year and has been selling Fremont Investment & Loan’s remaining assets. In July 2008, Fremont General sold the bank’s $5.2 billion in deposits and 22 bank branches to investment company CapitalSource Inc. in Chevy Chase, Md., which immediately created CapitalSource Bank.

During the housing boom, Fremont was one of the top 10 nationwide subprime lenders.

In other news…

• Foreclosure is the ‘cure’
• U.S. will let stronger banks repay bailout funds
• Time to double-down on housing?
• Do these homeowners deserve help?
• O.C. mortgage rates jump again
• SEC files civil charges against Countrywide founder
• Widow, 85, faces foreclosure
• Is FDIC’s LLP DOA?
• 1-in-4 O.C. homebuyers borrow 96% of sale price
• FTC may prohibit advance fees for loan-modification help
• Mortgage rates up, down or flat?
• Mortgage rates retreat
• FDIC slaps restrictions on 2 O.C. business banks
• Refinance to survive a cash-flow crunch

Fremont General of Brea said today the U.S. Bankruptcy Court in Santa Ana approved the sale of its 22 branches and its deposits, previously tagged at $5 billion, to investment company CapitalSource Inc., which formed a California bank to consummate the deal.

The sale should close before July 31, Fremont said in a brief filing.

It’s interesting to compare Fremont to the recent FDIC seizure of IndyMac Bancorp, a much larger bank. The FDIC shut down Fremont’s subprime lending business last year. But the company stayed afloat until it found a buyer for its assets with input from federal regulators.

IndyMac, which recently reported it had 33 branches and $18 billion in deposits, closed within weeks of Sen. Charles Schumer (D-New York) making public letters he wrote to regulators saying they were ill prepared for a failure of the bank, should one occur. That sparked a run on its deposits, and regulators took over the bank a week ago.

Does the Fremont case suggest that if Schumer hadn’t opened his mouth (or pen), IndyMac also could have found a buyer for its deposits and avoided the messy take over by the FDIC?

I think that’s a legitimate question. But I suppose one can also argue IndyMac was digging a deeper hole by relying more lately on brokered deposits to fund itself. For those unfamiliar with the term, brokered deposits are huge blocks of cash that specialized brokers shop around for their clients seeking the highest possible yield. In other words, IndyMac was paying more and more to get money in its doors. That suggests a takeover could have been more costly if regulators waited longer.

Related news:

• REITs? Forget it.
• Fremont General files for bankruptcy
• FDIC approves sale of Brea bank’s assets
• Report says FBI probing possible loan fraud at IndyMac
• Sen. Schumer raises concerns over IndyMac’s solvency
• Look who’s making subprime loans now
• Former Countrywide No. 2 sees opportunities in troubled mortgages
• Tustin company hopes to lead lenders down the right path, this time

Who came up with the bright idea of creating a company that buys a bunch of home loans and then pays out nearly all the income it gets to shareholders? What if the loans go bad? What if interest rates rise?

Paying at least 90 percent of earnings as dividends, a requirement of any real estate investment trust, means there’s little money left over for a rainy day.

If nothing else, it should be clear by now that the concept of a REIT that invests in subprime home loans was fraught with risk. Just look at the implosion of Irvine-based New Century Financial last year — it happened in the blink of an eye. It folded about a year after loans began to sour. Other subprime REITs failed, too.

But even for more stable home loans and perhaps other investments, the REIT concept is questionable.

Take a look at CapitalSource Inc. It’s a REIT, but lends and invests in loans vastly different from those made by the likes of New Century. It does a variety of business and real estate loans and also invests in mortgage-related assets.

CapitalSource, of Chevy Chase, Maryland, plans to buy the retail branches and certain other assets of bank Fremont Investment & Loan, a unit of Fremont General in Brea.

Basically, CapitalSource wants to fund its lending with Fremont’s deposits. It’s other sources of funds don’t look so good these days, it said in a filing Monday.

REITs from CapitalSource to New Century have relied on money borrowed from Wall Street or other major lenders to make loans or buy assets. The current credit crunch and certain rising interest rates make such financing more costly. (And though I can’t speak for CapitalSource, margin calls can be a problem.)

CapitalSource’s plan is to buy Fremont’s assets, form a new bank and then use the bank’s funds for its operations. It said in the filing: “We believe that deposit funding will lower our cost of funds and reduce our reliance on the more volatile capital markets.”

And CapitalSource plans to sell some of its assets to the newly created bank. Got that?

Here’s what it said in the filing:

“Our business plan approved by the regulators permits a sale of up to $2.2 billion of our existing loans to CapitalSource Bank, the proceeds from which sale we intend to use to reduce our total debt by approximately $1.5 billion.”

It has already sold more than $2 billion of mortgage-backed securities (MBS) at a loss (hat tip to Housing Wire). It has sold $1.5 billion in MBS since the end of March for a loss of $36 million. And in the first quarter it sold $591 million of MBS at a $21 million loss.

The company said it plans no more MBS sales this year, but may have to buy some home loans or other assets to maintain its REIT tax status this year.

Hmm.. what about next year? Maybe it’s time to drop the REIT idea.

“We intend to reexamine the strategic rationale for our REIT election, and we may determine not to elect to qualify as a REIT beginning in 2009 or thereafter.”

Along those lines, it may cut its dividend. It declared a dividend of 60 cents a share for the second quarter, but after that it will “reevaluate” the situation.

Of course, not being a REIT is no guarantee of survival. Fremont General filed for bankruptcy last week and is selling everything it owns after getting burned in subprime.

Related news:

• Fremont General files for bankruptcy
• FDIC approves sale of Brea bank’s assets
• Fremont expects to file for bankruptcy
• Regulators give Fremont 60 days to raise capital or sell bank
• Fremont’s woes mount
• That didn’t take long
• O.C. foreclosures hit new record in May, break 1,000 in a month for first time
• Orange County’s mortgage market distress could soon top the U.S.
• O.C. foreclosures rose in May, but totals differ in two reports
• O.C. mortgage delinquency rate climbs faster than state, nation

CapitalSource Inc., an investor and lender, said Tuesday federal regulators approved its planned purchase of $5 billion in deposits and 22 branches of Brea-based Fremont Investment & Loan.

The deal still has a hurdle or two left, however.

Fremont General, the parent of Fremont Investment & Loan, said in May it likely would file for Chapter 11 bankruptcy to facilitate the sale of its deposits, if the sale was approved by the Federal Deposit Insurance Corp. One reason to file bankruptcy: Fremont doesn’t believe it could put together all the documents necessary to solicit shareholder votes on a sale.

The company said then the bankruptcy will not affect the federally-insured deposits of its clients as long as their total accounts are worth less than $100,000.

Fremont also previously said it reached an agreement with Litton Loan Servicing LP, an affiliate of Goldman Sachs & Co., to take over servicing of its $12.2 billion loan portfolio.

Related news:

• Fremont expects to file for bankruptcy
• Regulators give Fremont 60 days to raise capital or sell bank
• Fremont’s woes mount
• It still pays to be a mortgage executive
• That didn’t take long
• O.C. foreclosures hit new record in May, break 1,000 in a month for first time
• 1st drop in ‘08 for O.C. distressed homes for sale
• Orange County’s mortgage market distress could soon top the U.S.

(UPDATED: clarification on sale.)

Brea-based Fremont General will sell most of the assets of its bank to CapitalSource, reports the Associated Press, a little more than two weeks after regulators gave Fremont 60 days to sell the bank or raise more capital.

Chevy Chase, Md.-based CapitalSource Inc. will pay a 2 percent premium on the bank’s roughly $5.6 billion in deposits and pay an additional $58 million to Fremont for its branches.

Fremont is keeping its loan servicing business and its “residential-mortgage assets,” which I assume means loans it holds, according to a separate report in the Wall Street Journal that also said CapitalSource will loan Fremont up to $200 million and is getting some $3 billion in cash and short-term investments and 70 percent of principal payments from a $5.5 billion pool of commercial real estate.

The deal is scheduled to close in the third quarter.

To read all my previous posts on Fremont, CLICK HERE.

Fremont General in Brea said banking regulators have ordered it to raise capital or sell its banking unit, Fremont Investment & Loan, within 60 days.

According to the filing, the Federal Deposit Insurance Corporation, with agreement from the California Department of Financial Institutions, ordered:

• “The Bank shall sell enough voting shares or obligations of the Bank so that the Bank will be “adequately capitalized,” as defined under the Federal Deposit Insurance Act and the related FDIC regulations, after the sale; and/or
• The Bank shall accept an offer to be acquired by a depository institution holding company or combine with another insured depository institution; and
• Fremont General and FGCC shall divest themselves of the Bank.”

Fremont’s troubled bank is already out of the loan-making business. These days it services loans and holds loans. Last year the FDIC ordered Fremont to shut down its subprime operation and also criticized its commercial lending business, which the company later sold.

Here’s more from today’s SEC filing:

The Directive restricts the interest rates that the Bank may pay on deposits to prevailing rates paid on deposits of comparable amounts and maturities paid by other FDIC insured depository institutions in the State of California. In addition, the Bank is not permitted to make any capital distributions to the Company, FGCC or any affiliate of the Bank, or to pay bonuses or increase the compensation of any director or officer of the Bank. The Directive further restricts transactions between the Bank and its affiliates. This Directive provides that it will remain in effect until the Bank is “adequately” capitalized on average for four consecutive calendar quarters, unless the Directive is otherwise modified, terminated, suspended or set aside by the FDIC. The Bank is and continues to be subject to the requirements and obligations set forth in the FDIC Cease and Desist Order dated March 7, 2007 and the DFI Final Order dated April 13, 2007.

Fremont last month said it is considering a sale or merger.

To read the full filing CLICK HERE.

Fremont also previously said it is selling — for an undisclosed price — some of its rights to service loans. Before that the company said it has delayed some debt payments and two buyers of its subprime loans have declared it in default. CLICK HERE to see my previous posts on Fremont.

Things may be coming to a head with Brea-based Fremont General, owner of Fremont Investment & Loan.

Last year I wrote about nondepository mortgage banks failing — New Century Financial and so on — and this year I fear lenders that actually take deposits from consumers could be at risk. Fremont, which issues certificates of deposit, last reported $7 billion in deposits to the Federal Deposit Insurance Corp.

I called the FDIC about Fremont, but a spokesman for the agency declined to facilitate an interview.

Let’s review the news: On Tuesday, Fremont said it would delay a $6.6 million interest payment on some senior notes as it attempts to negotiate a debt restructuring with the holder of most of the notes. This follows a previous announcement that Fremont has received default notices from two buyers of its subprime loans.

And last year the FDIC shut down Fremont’s subprime lending unit and said its commercial lending unit, which the company later sold, also had some issues.

I’d like to hear from readers on this one, especially folks who were around back when S&Ls collapsed and can give some perspective on how bank failures work. Hopefully, Fremont will pull through. The company has said it is looking at selling itself.

But this credit crunch keeps getting worse, and, well, anyone with an opinion or knowledge of these matters feel free to email me. Thanks.