With little capital, bank faces seizure

Regulators could seize troubled Newport Beach-based mortgage lender Downey Financial Corp. before the end of the year if the company fails to raise more capital, according to Security and Exchange Commission filings released this week.

The company was ordered in September by its main regulator, the Office of Thrift Supervision, to raise more capital.

“In the current economic environment, there is a significant risk that the bank will not be able to raise sufficient additional capital to ensure compliance with the capital requirements of the bank consent order by year-end,” an SEC filings released late Monday stated.

Shares in Downey were down 99 cents, or 68.28% to 46 cents when the markets closed Tuesday.

Downey reported a third-quarter loss of more than $81 million in October. The company announced last month that it would shut down its Newport Beach-based wholesale loan department and cut about 200 positions companywide. The department accounted for about 80% of Downey’s loan production.

Founded in 1957 by mortgage banker Gerald McQuarrie and home builder Maurice McAlister, Downey offered quick loans to people and businesses with good credit.

The lender began offering adjustable-rate mortgages to borrowers with less-than-perfect credit in the late 1990s. Downey Savings and Loan offered low introductory payments to the borrowers. Many of those mortgages are now in default.

Downey spokeswoman Elizabeth Stover could not be immediately reached for comment Tuesday.

BRIANNA BAILEY may be reached at (714) 966-4625 or at brianna.bailey@latimes.com.