Downey Financial Corp., Newport Beach, Calif., has announced an increase in previously reported levels of nonperforming adjustable-rate mortgage assets. The estimated level of nonperforming assets as a percentage of total assets was increased to 7.8% as of year's end. Downey said it had launched a borrower retention program in the third quarter aimed at enabling qualified borrowers to switch from a payment-option ARM to a less costly alternative. The modifications were not deemed troubled debt restructurings, and Downey's independent auditor did not object, the company said. But after further review, the auditing firm, KPMG LLP, advised Downey that they should be classified as troubled debt restructurings, and Downey agreed. "This conclusion was reached because in the current interpretation of [generally accepted accounting principles]," Downey said, "especially in the current housing market, there is a rebuttable presumption that if the interest rate is lowered in a loan modification, the modification is deemed to be a troubled debt restructuring unless the modified loan can be proved to be at a market rate of interest based upon new underwriting, including an updated property valuation, credit report, and income analysis." The company can be found online at http://www.downeysavings.com.

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