UPDATE 1-Fremont General says may file for bankruptcy

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By Jonathan Stempel

NEW YORK, May 9 (Reuters) - Fremont General Corp FMNT.PK, which was one of the largest U.S. providers of subprime mortgages before regulators ordered it to stop making the loans, said on Friday it may file for bankruptcy protection.

The Brea, California-based company announced its intentions a day after disclosing plans to sell some mortgage servicing rights to Litton Loan Servicing LP, an affiliate of Goldman Sachs Group Inc (GS.N: Quote, Profile, Research). Last month, it agreed to sell bank branches and deposits to CapitalSource Inc CSE.N.

Fremont said these sales covered substantially all assets of its Fremont Investment & Loan thrift unit.

The company said, though, that unless it enters a "viable transaction" for its remaining assets, it expects to file for Chapter 11 protection because it cannot comply with regulatory rules to solicit shareholder approval for the CapitalSource transaction. Fremont said the transaction could thereafter be approved in accordance with U.S. bankruptcy laws.

If the asset sales to CapitalSource and Litton take place, Fremont said it then plans to complete an "orderly liquidation" of Fremont Investment & Loan.

By filing for bankruptcy, Fremont would join a growing list of subprime lenders, including New Century Financial Corp NEWCQ.PK, to seek court protection since the U.S. housing slump began more than a year ago.

Well over 100 mortgage lenders have quit lending or sold their businesses since the downturn began.