What we Make of the Fremont Investment Loan Company
The Fremont Investment loan company, which has been a leader in subprime mortgage loans, has been experiencing financial difficulties, and just recently the Federal Deposit Insurance Corporation gave a cease and desist order to Fremont Investment and its parent companies. The main bank is located in Brea, California, and its parent companies are Fremont General Credit and Fremont General.
So, what did this company supposedly do wrong? According to the FDIC, the Fremont Investment loan company has allegedly been “without effective risk-management policies.” Moreover, the FDIC alleges that the company had been making subprime mortgage loans without using adequate criteria for determining the borrowers’ ability to repay. All the Fremont companies agreed to comply with the cease and desist order without admitting or denying anything.
For a while, Fremont was a leading name in subprime mortgage loans. It was one of the few companies that gave creditors with little or bad history a chance. The recent crackdown on subprime lenders has caused a lot of problems in the subprime mortgage industry, which has caused some confusion among those with a Fremont Investment loan.
Chapter 11 Bankruptcy – In June of 2008, Fremont General voluntarily filed a petition under Chapter 11 of the U.S. Bankruptcy Code. The bankruptcy case is still ongoing, as the company tries to reconstruct itself. In July of 2008, CapitalSource Inc. assumed every deposit liability of Fremont Investment & Loan. This was done under the subsidiary CapitalSource Bank. Those with a Fremont Investment loan found that there were no changes to their accounts.
Fremont Investment was not the only subprime lender that had problems. In fact, the entire market was unstable. Within the past couple of years, regulators have tightened the rules for subprime lending. Now, the lenders must fully disclose the rates and fees associated with the loan, even for adjustable rate mortgages (ARMs).
Subprime lenders now must require the borrowers to provide documented proof that they have a source of income or savings with which they can pay back their loans. A few years ago, this was not required of the borrowers. Subprime lenders would simply accept the borrower’s word that he or she had enough money to pay back the loan.
Needless to say, had such regulations been law sooner, many borrowers would not have had such trouble with their Fremont Investment loan or similar loan. Other measures have been put forth to regulate predatory lending practices. This protects borrowers from being victimized for not understanding exactly what they signed. Some subprime mortgage lenders have been known to confuse lenders, and then being predatory toward the vulnerable ones who have trouble paying on their loan.
As a result of tougher regulations, subprime buyers now receive 60 days notice of reset dates. They can no longer be entrapped in an ARM unsuspectingly and without warning. Subprime mortgage lenders now must deal ethically with borrowers. Borrowers, or course, must now provide documentation to verify their income. In the end, these new, strict regulations protect both borrowers and lenders such as Fremont.