DOWNTOWN — First Federal Bank of California, a fixture in Santa Monica for 80 years and one of the oldest and largest financial institutions in Los Angeles, has become the latest victim of the volatile real estate market, forced to close its doors Friday by the federal Office of Thrift Supervision.
FirstFed Financial Corp. was unable to repair a loan portfolio filled with billions of dollars in decaying adjustable-rate mortgages. The closure ends a tumultuous period for the 80-year-old savings and loan, which, despite sustaining losses for more than a year, was the longest surviving lender of risky option adjustable-rate mortgage loans.
The Federal Deposit Insurance Corp. was named as the receiver. OneWestBank, located in Pasadena, assumes all deposits, according to officials with the Federal Deposit Insurance Corp.
FirstFed had approximately $6.1 billion in total assets and $4.5 billion in total deposits as of Sept. 30. That made it the sixth biggest depository institution in Los Angeles County.
The 39 branches of First Federal Bank of California were expected to reopen Saturday as branches of OneWestBank. Those with accounts with FirstFed will automatically become depositors of OneWest. Deposits will continue to be insured by the FDIC.
“This transaction is consistent with our strategy to expand the OneWest footprint in our home market of Southern California,” Steven Mnuchin, chairman of OneWest Bank, said in a statement.
FirstFed customers this weekend can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual, federal banking officials said.
In addition to assuming all of the deposits of the failed bank, OneWest Bank agreed to purchase essentially all of the assets.
OneWest’s management has experience sifting through failed mortgage portfolios. The thrift’s predecessor, IndyMac Bank, had been one of the largest originators of risky Alt-A mortgage loans during the housing boom. But as the loans went bad, the institution became one of the largest casualties of the bust, according to the Los Angeles Business Journal.
FirstFed is the fifth local federally insured institution to fail in 2009, and the first since California National Bank was shuttered Oct. 30. Regulators said the closure is expected to cost the FDIC’s deposit insurance fund $146.3 million, the Los Angeles Business Journal reported.
FirstFed has been a fixture in the area since opening its doors in Downtown Santa Monica in 1929, taking deposits and offering personal and home mortgage loans. In 1983, the institution began offering adjustable-rate mortgages, which would become a core product offering.
Over the past decade, however, with Wall Street scrutinizing mortgage loans in large numbers, competition grew heated, driving down underwriting standards. In a recent interview, FirstFed executives admitted to dropping their own standards during the boom times, but said they tried to cut back well before the crash, the Los Angeles Business Journal reported.
Most of the thrift’s recent problems stem from 2005, when FirstFed originated $4.4 billion in single-family loans, primarily option-ARMs. Uneasy with the rapidly growing loan portfolio, the thrift in late 2005 began requiring proof of income for all mortgages, and business dropped by half almost immediately.
With cracks in the housing market beginning to show, FirstFed in 2007 embarked upon an aggressive and moderately successful loan modification program to help stave off problems in its option-ARM portfolio.
Following a $245 million loss in the fourth quarter of 2008, regulators issued a cease and desist order directing the thrift to raise capital. Executives took drastic measures, including laying off 10 percent of its workforce and selling real estate, but were unable to raise new capital.
FirstFed is the 140th FDIC-insured institution to fail in 2009. The closure was the fifth in Los Angeles County this year. Besides Cal National, the other local closures were Alliance Bank in February, First Bank of Beverly Hills in April and Mirae Bank in June.