FirstFed’s stock jumps on improved loan data from July

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From Times staff writer E. Scott Reckard:

July portfolio data for L.A.-based mortgage lender FirstFed Financial Corp. are giving the company’s battered stock a pop today.

In a monthly operational update filed with the Securities and Exchange Commission, the parent of First Federal Bank of California said it made 30% more loans in July than in June, and 166% more than in July 2007.

That’s significant because the mortgages the thrift now is originating -- mostly loans with five years of fixed payments that then become adjustable-rate -- are fully documented loans to Californians who have to prove they can afford the payments.

It’s a contrast to the ‘liar loans’ that got FirstFed and a host of other California thrifts in trouble: stated-income option ARMs that didn’t require borrowers to document their incomes and allowed them to pay so little that their loan balances went up.

And as FirstFed reshapes itself as a more traditional lender, it’s slowly working off some of the hangover from the era of credit excess. The firm’s ratio of nonperforming assets to total assets, a key measure of dud loans, was 7.56% on July 31. That’s still extraordinarily high, and up from 1.01% a year earlier. But it was down noticeably from the 8.20% recorded at the end of June.

Single-family loans delinquent by 60 to 89 days rose to $101.4 million from $81.4 million in the month. But newer delinquencies -- mortgages 30 to 59 days late -- edged down to $123.4 million from $126.3 million. And non-accrual single-family loans (mortgages on which payment has stopped) totaled $437.2 million, down 11% from $491.7 million a month earlier.

FirstFed CEO Babette Heimbuch called the July results ‘encouraging,’ although she added in an e-mail that there could be no guarantees the improvements would continue.

The thrift’s deposits totaled $4.16 billion at the end of last month, up 7.7% from June 30. But retail deposits declined 8.1% to $2.91 billion, most likely as some nervous depositors bolted after seeing the losses suffered by uninsured depositors at failed IndyMac Bank.

FirstFed made up the difference by increasing its brokered deposits -- funds brought in by third parties chasing high-yielding CDs.

The need to raise funds through ‘hot money’ brokers is one of the ongoing risks that FirstFed faces –- along with falling California home prices, rising short-term interest rates and tighter federal regulation, Keefe, Bruyette & Woods analyst Fred Cannon noted in a report this morning.

Still, as FirstFed’s problems with its old easy-money loans go down, its stock is going up along with the number of more rational loans the lender now is writing. ‘Short sellers’ who had bet on the company’s demise have been pulling back on those trades, and may be doing so again today by buying the stock to close out previous sales of borrowed shares.

The stock shot as high as $11.98 early today. At about 10:30 a.m. PDT it was up $1.69, or 18.6%, to $10.79. The shares hit a low of $3.99 on July 14.