As fundings decreased for the fifth consecutive quarter, Downey Financial Corp. warned that increases in teaser rates may lead to decreases in option-ARM originations.
The Newport Beach, Calif.-based lender reported that first quarter residential originations of $2.8 billion slipped $0.3 billion from the previous quarter and sunk $1.4 billion from the level a year ago.
Production has fallen every quarter since the fourth quarter 2004 at the Alt-A lender, when volume was a reported $4.4 billion.
Loans serviced for others totaled $5.8 billion as of March 31, 2006, according to Downey's earnings statement.
Loans with negative amortization edged up $0.4 billion during the first quarter to $13.9 billion, Downey said.
"In light of continued increases in market interest rates and changes we are beginning to see in the residential market, such as an increased level of unsold homes and relatively flat home prices on a sequential month basis, we recently instituted pricing changes for the option ARMs we originate for portfolio by increasing the initial start rate and thereby lowering their potential for negative amortization," said Daniel D. Rosenthal, president and chief executive, in the announcement. "Since our new start rate is now higher than those of many of our competitors, our production of option ARMs for portfolio may not offset loan payoffs."
Downey announced net income rose on a quarterly basis to $44.8 million, but was down $6.9 billion from the year-ago first quarter primarily due to the decline in net gains on sales of loans and mortgage-backed securities caused by a lower volume of loans sold and gain per dollar of loan sold.