Mortgage lenders stocks rebound

By Jonathan Stempel

NEW YORK (Reuters) - Shares in U.S. mortgage lenders rebounded for a second day as the pace of residential refinancings increased and on optimism that some struggling lenders may find buyers.

Shares of Fremont General Corp. FMT.N rose $1.75, or 25.8 percent, to $8.53 amid hopes the subprime lender, one of the nation's largest, is close to selling its Fremont Investment & Loan subprime unit.

Its shares fell 60 cents to $7.93 in after-hours trading after the Santa Monica, California-based company said a transaction may not happen, following reports it told workers it is in talks with five or six companies interested in the unit.

Fremont had on Friday said it was in talks with multiple suitors. It stopped making home loans this week, and put many of its 2,400 subprime employees on paid leave, after the Federal Deposit Insurance Corp. told it to end risky lending practices.

Among other subprime lenders, New Century Financial Corp. NEW.N closed up 14 cents at $5.16 but is still 64.8 percent below its Friday close. Shares of NovaStar Financial Inc. NFI.N, another subprime lender, rose 56 cents to $5.09, but are 29.7 percent below Friday's close.

Other gainers in the mortgage sector included Countrywide Financial Corp. CFC.N, the largest mortgage lender, up 15 cents to $37.00; Impac Mortgage Holdings Inc. IMH.N, up 88 cents to $5.75, and IndyMac Bancorp Inc. NDE.N, up $1.52 to $31.18.

Shares rose after the Mortgage Bankers Association, a trade group, said its seasonally adjusted index of refinancing applications rose 15 percent last week and is up 38.4 percent from a year earlier.

"SUN WILL SHINE AGAIN"

Refinancing activity increased as interest rates fell in conjunction with last week's stock market sell-off. This gave a boost to lenders, which have been suffering from slowing home price appreciation and rising defaults.

Subprime lenders, which make loans to people with poor credit histories, have been particularly hard hit. More than 20 have quit lending or have gone bankrupt in the past year.

"We've been in an extended period of low delinquency rates (and) aggressive extension of credit," said Eric Sieracki, Countrywide's chief financial officer, at a Morgan Stanley conference monitored by Webcast.

"It's a simple story of taking the pain now to expunge the excess (lending) capacity, and we'll see a normalization," he continued. "The sun will shine again."

Fremont stopped making new home loans on Monday, and a day later said it also would not fund home loans that were in the pipeline but had not yet closed.

"We will fund loans ONLY if the LOAN IS CLOSED (signed) prior to the close of business Monday 3/5/07 with all credit conditions satisfied," Fremont said on its Web site. "Loans in process in which documents have not been signed ... will be declined for the following reason 'Don't Grant Credit on these Terms and Conditions.'"

The company has said it is making commercial loans.

Irvine, California-based New Century, meanwhile, on March 2 said it faces a federal criminal investigation involving securities trading and accounting, and that its survival may depend on its own lenders' easing terms.