- The Washington Times - Sunday, November 23, 2008


Federal regulators shut down two big thrifts based in Southern California on Friday night, saying they fell victim to the acute distress in the housing market.

The failures of Downey Savings and Loan Association, based in Newport Beach, and PFF Bank & Trust of Pomona brought the number of U.S. bank failures this year to 22.

The Federal Deposit Insurance Corp. was appointed receiver of the two thrifts.

U.S. Bank, based in Minneapolis, is acquiring all the deposits and nearly all the assets of both. The combined 213 branches of the two will reopen as branches of U.S. Bank under their normal business hours, including those with Saturday hours.

Downey, the 23rd-largest U.S. savings and loan, had assets of $12.8 billion and deposits of $9.7 billion as of Sept. 30. PFF, the 38th-largest, had assets of $3.7 billion and $2.4 billion in deposits.

At the same time, the FDIC and U.S. Bank signed a loss-sharing agreement calling for the bank to assume the first $1.6 billion of losses on the thrifts’ mortgages and loans, while the FDIC will share in any losses beyond that.

Also under the deal, U.S. Bank agreed to put into effect for the thrifts a mortgage modification plan similar to that launched by the FDIC for another big collapsed savings and loan, IndyMac Bank of Pasadena, Calif., which was seized in July with about $32 billion in assets.

Under the IndyMac plan — also used as a model for a new program by mortgage finance companies Fannie Mae and Freddie Mac — struggling home borrowers pay interest rates of about 3 percent for five years. Rates are reduced so that borrowers aren’t paying more than 38 percent of their pretax income on housing.

Also Friday, Georgia regulators shuttered the Community Bank, a small bank in Loganville, Ga.

The FDIC was made receiver of the bank, which had $681 million in assets and $611.4 million in deposits as of Oct. 17. The FDIC said all the bank’s deposits and about $84.4 million of its assets will be acquired by Bank of Essex, of Tappahannock, Va. Its four branches will reopen Monday as offices of Bank of Essex.

The Office of Thrift Supervision, the federal regulator for the two California thrifts, said they both suffered mounting losses since last year. Downey’s business focused on nontraditional, high-risk home mortgages such as payment-option and adjustable-rate loans.

The Treasury Department agency recently boosted the minimum capital requirements for the parent, Downey Financial Corp., as the company struggled with the slumping mortgage market. Downey was hit hard by rising mortgage defaults, especially in its option adjustable-rate mortgage holdings. Option ARMs allow customers to choose a different payment option each month - including a payment that is smaller than the interest due on the loan.

Option ARMs have been among the worst-performing loans during the downturn in the real estate market.

PFF, established in 1892, had a large concentration of housing construction loans hit hard by the deteriorating real estate market on the West Coast, the thrift agency said.

“The closing of these two thrifts once again demonstrates the tremendous impact of the housing market distress on the state of California,” said John Reich, director of the Office of Thrift Supervision.

This year, four of the five failures of institutions regulated by the agency - and all of the ones of significant size - had major concentrations in housing finance business in California, he said.

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