Newport Beach-based thrift operator Downey Financial Corp., the largest financial institution based in Orange County, last week reported a big mortgage-related quarterly loss.
But investors pushed up the stock for a time, perhaps betting the worst may be over for the mortgage lender as it attempts to maneuver itself to better footing.
Arlington, Va.-based investment bank Friedman, Billings, Ramsey & Co. upgraded Downey from “underperform” to “market perform” after the thrift operator reported first-quarter results.
Downey reported a net loss of $248 million for the quarter, compared to a profit of $43 million a year earlier. Wall Street had expected a $30 million loss.
The loss was affected by a $236 million increase in loan loss provisions, which stood at about $1 million a year ago.
Downey also had a $111 million charge due to tax accounting changes.
Net interest income fell $41 million from a year earlier, or 33%, to $89 million.
The company reported some progress in the quarter.
Option adjustable-rate loans, which offer borrowers a low rate to start then reset at often unaffordable levels, now make up 65% of Downey’s $13 billion portfolio, down from 81% a year earlier.
Downey said it is doing what it can to avoid taking homes from borrowers who cannot pay and has renegotiated terms with many.
The company said it also is working to unload foreclosed homes as quickly as possible.
“In the current quarter, we sold 67 homes, approximately 61% of which occurred in March,” President Rick McGill said. “At the end of the current quarter, about 23% of our inventory of unsold homes was either in escrow to be sold or in negotiation to be sold.”
Downey has also tightened credit by requiring better credit histories and more invested cash by borrowers.
Still, the company’s board said it would suspend dividend payments to preserve cash.
“Although it was a difficult decision, our board of directors believes the suspension of future dividends is in Downey’s best interest,” said Maurice McAlister, Downey’s chairman, cofounder and 20% shareholder.
The company also said it paid $23 million in expenses to handle houses it took back in foreclosure.
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Dan Beighley
