Shares of Newport Beach-based Downey Financial Corp. closed down 7% on credit concerns from Standard & Poor’s Tuesday.
The ratings agency said it was considering cutting its rating on the thrift operator due to falling housing prices and loan losses.
“This action was taken in response to our increasing concerns about the substantial negative effect the deterioration in California’s housing market is having on Downey’s credit performance, financial profile, and profitability,” according to Standard & Poor’s.
Downey’s stock has fallen about 80% for the year as it reports increasing losses due to defaults from its home loans.
The company has also come under pressure from class action lawsuits filed on behalf of shareholders who have accused it of making false and misleading statements in its press releases and Securities and Exchange Commission filings.
For April, Downey reported more than 13% of its $13 billion in loans were in default. In March it reported 12% of its loans were in default.
The majority of the loans were adjustable rate mortgages that reset at higher rates, making it harder for borrowers to pay.
The company has been renegotiating loans with some of its borrowers.
Downey’s adjustable-rate loans now make up 65% of its portfolio, down from 81% a year earlier.
