LOS ANGELES (AP) -- Federal and state banking regulators have given financial services company Fremont General Corp. 60 days to raise new capital or sell its banking subsidiary, the company said Friday.

The Federal Deposit Insurance Corp. and the California Department of Financial Institutions set a May 26 deadline for the Brea, Calif.-based company to raise capital, according to a filing with the Securities and Exchange Commission.

The FDIC considers the company's banking unit, Fremont Investment & Loan, to be undercapitalized by regulatory standards, Fremont said in the filing.

The two banking regulators issued their directive to the company on Wednesday, ordering it to sell shares or assets to raise enough capital to meet regulatory minimums, put itself up for sale and divest the bank.

The federal agency also restricted Fremont to offering interest rates at prevailing rates paid by similar banks in California.

The company was also ordered not to increase pay for executives or make any payouts to any affiliate of the bank.

Fremont said it is trying to raise capital and also exploring selling the company or the bank.

Fremont was primarily a mortgage lender until early last year, when it was forced by regulators to cease originating mortgages.

The agency claimed Fremont was operating without proper risk management oversight. The company proceeded to sell its mortgage assets after the lending operations were closed.

It has since been struggling to turn itself around following the collapse of the subprime mortgage industry.

Last week, the company announced it agreed to sell the servicing rights to some $1.9 billion of its securitized mortgage loans to a subsidiary of Carrington Capital Management LLC for an undisclosed amount.

The sale followed the disclosure earlier this month that it received default notices on $3.15 billion in subprime mortgages it had previously sold to investors.

Fremont shares fell 9 cents, or 14.8 percent, to 52 cents Friday.

Fremont General Corp.: http://www.fremontgeneral.com