The Federal Deposit Insurance Corporation (FDIC) has issued a cease and desist order against Fremont Investment & Loan, and its parent corporations, Fremont General Corporation and Fremont General Credit Corporation.
In a statement, the FDIC said it found that the bank "was operating without effective risk management policies and procedures in place in relation to its subprime mortgage and commercial real estate lending operations".
Under the order, Freemont Investment must adopt a five-year strategic plan for its business. Freemont must also adopt a subprime mortgage lending policy with provisions designed to correct its lending practices, including underwriting future subprime loans with an analysis of the borrower's ability to repay at the fully indexed rate and provide borrowers with clear information about the benefits and risks of the products, within 90 days.
"Our concern has always been that banks make loans that borrowers are able to repay," said FDIC Chairman Sheila C. Bair. "We believe that the agreement with Fremont addresses this basic concern."