Survey: Downey Financial Foreclosures Are Skyrocketing

| About: Downey Financial (DWNFQ)
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Today I updated my Downey Real Estate Owned (REO) survey for July and August 2007. It's based on a sample of San Diego, San Joaquin, and Solano counties only. See the footnote for more on how this data is collected.

Survey indicates that Downey borrower defaults and foreclosures are up sharply so far this quarter, and are increasing at an accelerating pace.

So far this year, the survey of these counties has been highly correlated with Downey's reported results, making the survey a great leading indicator. So, I expect that for third quarter, Downey will report non-performing loan statistics that are a multiple of the numbers in these charts.

The following chart extrapolates results for Q3 based on data collected in July and August.

There were 73 properties listed on Downey's website on May 14, 2007. Today there are 113.

Because Downey is an option-ARM lender, many of their borrowers are making artificially low, negatively amortizing payments. This may be temporarily allowing people to avoid defaulting. I expect Downey's default numbers to worsen as borrowers hit loan interest resets and/or max out their negative amortization caps.

(1) Not all counties make this data easily available online (especially in California). Los Angeles does not provide online access, and many of the counties that do have extremely cumbersome interfaces. My surveying method is to count all of the default notices and all of the notices of trustee's sale/trustee deeds during the time period. I do not make any adjustments for notices of rescission of default. I have found this data to be an excellent leading indicator, but no warranty is made as to its accuracy.
(2) I have covered my NCT short. There is relatively little public information about their portfolio and it's possible that the market has overreacted.