Downey Financial Corp. production fell for the seventh consecutive quarter and may be further affected by the recent federal guidance on nontraditional loans.

Loan originations totaled $1.6 billion in the third quarter, down 24 percent from the linked quarter and 56 percent below the comparable period a year ago, according to an announcement today.

Contributing to the decline was the increase in start rates the Newport Beach, Calif.-based lender implemented in March for option adjustable-rate mortgages as a means to reduce the potential for negative amortization, President and Chief Executive Daniel D. Rosenthal explained in the announcement.

In September, however, Downey reportedly lowered the start rate for borrowers who have high FICO credit scores and low loan-to-value ratios to stimulate loan production while limiting credit exposure.

"We are not certain this pricing change will result in loan production completely offsetting portfolio payoffs, especially as we consider the implications of, and alternatives available to us in response to, the final guidance recently issued to depository institutions by the banking regulators regarding so-called nontraditional mortgage products, of which option ARMs are an example," Rosenthal added.

As of Sept. 30, mortgage loans serviced for others had a balance of $6.6 billion, according to the announcement. Delinquency as a percentage of total loans was 0.68 percent.