DISCONTINUED OPERATIONS

6 Months Ended

Jun. 30, 2011

DISCONTINUED OPERATIONS [Abstract]

DISCONTINUED OPERATIONS

NOTE 13 - DISCONTINUED OPERATIONS

The following tables present the assets and liabilities and financial results of the components of the Company designated as discontinued operations as of and for the periods indicated:

Assets and Liabilities of Discontinued Operations

	June 30,		December 31,
(Dollars in thousands)	2011		2010
Cash and cash equivalents	$	117	$	568
FHLB stock		2,051		2,051
Loans held for sale, net		37,750		38,938
Commercial real estate investments		1,176		5,484
Note receivable		1,750		1,639
Real estate owned, net		3,740		7,003
Property and equipment, net		-		778
Other assets		744		800
Total assets of discontinued operations	$	47,328	$	57,261
Repurchase reserve	$	8,873	$	8,873
Accrued expenses and other liabilities		4,843		6,217
Total liabilities of discontinued operations	$	13,716	$	15,090

Statements of Operations of Discontinued Operations

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2011			2010			2011			2010
Revenues:
Interest	$	1,166		$	1,055		$	2,283		$	2,286
Gain on loans held for sale		82			2,238			654			4,463
Gain (loss) on real estate owned, net		80			(1,414	)		(306	)		(1,526	)
Other, net		287			381			553			521
Total revenues		1,615			2,260			3,184			5,744
Expenses:
Compensation		254			1,409			956			3,122
Professional fees		1,501			(245	)		3,063			2,489
Insurance		-			1,753			-			3,497
Litigation		-			250			-			1,282
Other		427			519			1,551			1,087
Total expenses		2,182			3,686			5,570			11,477
Loss from discontinued operations before reorganization items, net and income taxes		(567	)		(1,426	)		(2,386	)		(5,733	)
Reorganization items, net		-			116			-			394
Loss from discontinued operations before income taxes		(567	)		(1,542	)		(2,386	)		(6,127	)
Income tax (benefit) expense		(159	)		-			427			150
Loss from discontinued operations	$	(408	)	$	(1,542	)	$	(2,813	)	$	(6,277	)

Loans held for sale, net

Loans held for sale, net are comprised of subprime residential real estate loans and are carried at the lower of aggregate cost or estimated fair value. Estimated fair values are based on several factors, including current bids and market indications for similar assets, recent sales, discounted cash flow analyses, estimated values of underlying collateral and actual loss severity experience in portfolios backed by similar assets.

The following table details the residential real estate loans held for sale as of:

	June 30,			December 31,
(Dollars in thousands)	2011			2010
Unpaid principal balance	$	103,177		$	106,598
Net deferred direct origination costs		181			184
Loans held for sale before valuation allowance		103,358			106,782
Valuation allowance		(65,608	)		(67,844	)
Loans held for sale, net	$	37,750		$	38,938
Principal balance of loans held for sale on non-accrual status	$	50,170		$	56,589

At June 30, 2011 and December 31, 2010, non-accrual residential real estate loans as a percentage of unpaid principal balances were 49% and 53%, respectively. There were no loans greater than 90 days past due and accruing interest at June 30, 2011 and December 31, 2010.

A valuation allowance is maintained to adjust the loans to lower of cost or fair value. Provisions for the valuation allowance are charged against gain (loss) on loans held for sale in the statements of operations of discontinued operations.

Commercial real estate investments

Commercial real estate investments primarily consist of participations in community development projects and similar types of loans and investments that FIL previously maintained for compliance under the Community Reinvestment Act.

Loans included in commercial real estate investments are recorded at the lower of aggregate cost or fair value.  Investments in partnerships are recorded under the equity method and periodically assessed for impairment.  Commercial real estate investments consisted of the following as of:

	June 30,		December 31,
(Dollars in thousands)	2011		2010
Loans	$	318	$	1,018
Investments in partnerships		858		4,466
Total commercial real estate investments	$	1,176	$	5,484

During the three and six months ended June 30, 2011, Signature sold $3.2 million in commercial real estate investments, resulting in a gain of $0.7 million.  There were no sales of commercial real estate investments for the three and six months ended June 30, 2010.

Impairment of commercial real estate investments was $0.4 for the three and six months ended June 30, 2011.  There was no impairment of commercial real estate investments for the three and six months ended June 30, 2010.

Real estate owned, net

REO consists of residential property acquired through or in lieu of foreclosure on loans secured by residential real estate. REO is reported in the financial statements at the lower of cost or estimated net realizable value. REO consisted of the following as of:

	June 30,			December 31,
(Dollars in thousands)	2011			2010
Real estate owned	$	4,369		$	8,208
Valuation allowance		(629	)		(1,205	)
Real estate owned, net	$	3,740		$	7,003

Gain (loss) on real estate owned, net, including provisions for losses, gain or loss on dispositions and other expenses, were $0.1 million and ($1.4) million during the three months ended June 30, 2011 and 2010, respectively.

Loss on real estate owned, net, including provisions for losses, gain or loss on dispositions and other expenses, were $0.3 million and $1.5 million during the six months ended June 30, 2011 and 2010, respectively.

Repurchase reserve

In prior years, as residential loans held for sale were sold, Fremont made customary standard industry representations and warranties about the loans sold. The Company may have to repurchase certain loans due to material defects that occurred in the origination of the loans. At June 30, 2011, the Company's repurchase reserve for estimated losses expected to be realized totaled $8.9 million.  In preparing its estimate for the repurchase reserve, which includes both known and unknown claims, management considers the loan products, vintage, aging of repurchase claims, previous settlements with investors and actual loss experience. Provisions for the repurchase reserve are charged against gain (loss) on loans held for sale in the statements of operations of discontinued operations.

There were no settlements of outstanding repurchase claims during the three and six months ended June 30, 2011.  There were $28.3 million in settlements of outstanding repurchase claims during the three and six months ended June 30, 2010.

Income taxes

Income tax benefit was $0.2 million and zero for the three months ended June 30, 2011 and 2010, respectively.  Income tax expense was $0.4 million and $0.2 million for the six months ended June 30, 2011 and 2010, respectively.  Refer to Note 8 – Income Taxes for additional information regarding income taxes.