An increase in the minimum payments required on payment-option mortgages has pushed Downey Financial Corp.'s production down.

Residential loan fundings were $2.1 billion during the second quarter, falling 26% from the prior quarter, according to an announcement today. Fundings were just half what they were in the same period last year.

This is the sixth consecutive quarterly decline for the Newport Beach, Calif.-based company.

But CEO Daniel D Rosenthal said in the announcement that the decline was anticipated because of an increase in the minimum payments and initial interest rates on option adjustable rate-mortgages -- a move intended to reduce the potential for negative amortization.

"Although we offer other types of adjustable rate loans for portfolio that do not permit negative amortization, there is less consumer demand for these products and, therefore, loan originations for portfolio did indeed fall short of loan payoffs in the second quarter," Rosenthal said.

The latest figures include $0.9 billion in "loans originated for sale portfolio," down from $2.8 billion during the second quarter 2005, according to the report.

The servicing portfolio ended the period at $6.3 billion, while total residential loans, including home equity loans and lines-of-credit, held for investment were $15.1 billion, Downey reported. Delinquency was 0.41% as of June 30.

Net income during the second quarter reportedly was $49.5 million.