Shares of beleaguered savings and loan operator Downey Financial Corp. closed down more than 10% Wednesday on rumors about the nation’s largest thrift, Washington Mutual Inc.
Newport Beach-based Downey closed down 11% on a market value of $125 million. The company’s shares are off nearly 90% in the past year as the company deals with a rise in bad mortgages.
Wednesday’s stock drop was a spillover from concerns about Washington Mutual.
The Seattle-based company denied what it called market rumors about regulators taking enforcement action against it.
Like Downey, Wamu has been hit by investor concerns about losses on mortgages.
“Finally you are starting to see some analysts really crunch the numbers on this story, and large institutional investors are out there believing it,” Les Childress, president of Childress Investment Research, told Reuters. “Everyone seems to be in the same direction, that the losses are going to be extensive.”
For April, Downey reported more than 13% of its $13 billion in loans were in default. In March it reported 12% of its loans in default.
The majority of the loans are 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.
