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Where do you want to start? Its stock is trading this morning at $1.49 (the 52-week high was $65.67). When dividing non-performing assets by all outstanding loans, a common way of determining a bank in trouble, Downey stands at 13.86 percent (anything over 5 percent is considered iffy). Earlier this month, Lehman Brothers said it would stop covering the stock because of the company's uncertain outlook (here's a Reuters story). "It appears Downey is overwhelmed by rising nonperforming assets, and its excess capital, deposit franchise and underwriting may or may not save it, but that is now beyond the scope of analysis," the brokerage said. It's a decent bet that regulators are taking a careful look at Newport Beach-based Downey (as they are other struggling banks), but there is no indication of the sort of bank run that happened with IndyMac. And even if the feds swoop in, it would be mostly a non-event for folks who have the adequate amounts for deposit insurance. From Dan Beighley in the Orange County Business Journal:
Much of Downey’s lending was in the option adjustable rate mortgages, which offered flexible credit card-style payments on loans with interest rates that rose after a few years. As the bulk of loans began to reset at higher rates last year and this year, record numbers of borrowers became unable to afford them. Many of Downey’s borrowers fell into the Alt-A category with credit histories that were less than the ideal prime category but better than worst subprime borrowers. The company has tried to renegotiate loans with some of its borrowers. It has also acquired a large number of foreclosed homes it is trying to sell off.
The Business Journal also reports that Downey has tried luring depositors the old-fashioned way: By offering a free set of “French white” CorningWare. It's also advertising 650 bank-owned homes "at bargain prices."
Most—about 560—are in California. Orange County has about 25. Riverside and San Bernardino counties have about 100 combined. The majority of the houses have asking prices of less than $500,000. The mortgage downturn that started in 2007 has turned Downey into a caretaker and seller of foreclosed homes. It’s the flipside of the housing boom that just a couple of years ago fueled Downey, which specialized in mortgages with initial low rates that rose after a few years.
Unlike IndyMac, which was pretty upfront in its final days, Downey is saying next to nothing about its situation. The company is notoriously tight-lipped.
Mark Lacter created the LA Biz Observed blog in 2006. He posted
until the day before his death on Nov. 13, 2013.