First Federal Bank of California Home-Loan Modifications Pass $1.4 Billion In Most Active Quarter Yet; Loan Delinquencies Fall Sharply from Peak

September figures show that First Federal Bank of California, a wholly owned subsidiary of FirstFed Financial Corp. (Pink Sheets:FFED), has modified more than $1.4 billion worth of home mortgages, enabling nearly 3,000 California families to avert foreclosure. The Bank’s workouts continue to perform better than those of banks nationally, fulfilling the Obama Administration’s goal for lenders to provide affordable and sustainable mortgages to borrowers who face hardship.

The strong loan-modification results accompany other positive financial trends for First Federal Bank of California. Overall loan delinquencies declined significantly as of September 30, 2009 compared to their previous peak levels. Loans that were 30-59 days delinquent fell to $70.6 million as of September 30, or 55% lower than the $157.5 on January 31, 2009, according to unaudited, unconsolidated monthly results. Loans that were greater than 60 days delinquent fell to $16.8 million, or 95% lower than the $341.3 million on February 28, 2009. Loans in foreclosure fell 38% to $281.8 million from $456.2 million on June 30, 2009.

September capped the most active three-month period for loan modifications since First Federal Bank of California launched its program (see table below). Nearly 900 mortgages worth some $442 million were modified in the July to September quarter. The Bank, a Southern California community lender for 80 years, has reached out to residential-mortgage holders and to date, has successfully modified more than one-third of its option arm loan portfolio.

First Federal Bank of California’s early, proactive and sustained effort to respond to its borrowers’ needs has produced a pace-setting loan-modification program. Compared to the national average, far fewer loans modified by the Bank have defaulted as of August 31, the latest date for which there is comparative data. Just 28.3% of the loans modified by First Federal Bank of California in the first quarter of 2008 had become at least 30 days delinquent 12 months after they were modified. By contrast, that figure is 65.9% for national banks and federally regulated thrifts, according to a September report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

In other words, for the earliest home loans that were modified – those with the longest track record by which to measure performance – two-thirds of the mortgages nationally have fallen 30 days behind, while less than one-third of First Federal Bank of California’s are similarly delinquent. Thanks to refinements in its loan-modification program and its flexibility in working with borrowers because the Bank holds the mortgages in its own portfolio, First Federal Bank of California has steadily improved its success rate (see graph).

The most recent results show that the Bank modified 304 home mortgages worth $153 million in September, nearly three times the volume of its loan modifications in September 2008. First Federal Bank of California acted early to offer modifications even before borrowers defaulted on their payments. Over 90% of the loans that the Bank has modified since the program started were current at the time they were modified. The Bank converted many adjustable-rate loans into fixed-rate mortgages for up to 10 years and eliminated negative-amortization provisions for modified loans. These steps have reduced the risk of foreclosure and potential loan losses.

Loan delinquency trends also point to reduced risk of foreclosure. Recently, loans that were 30-59 days delinquent largely have not deteriorated to more serious categories of delinquency in following months. They either have been cured or they remained less than 60 days delinquent.

First Federal Bank of California, a federally chartered savings association, operates 39 retail banking offices in Southern California. FirstFed Financial Corp. is a savings and loan holding company.

This news release contains certain forward looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Act of 1995. These forward looking statements are subject to various factors, many of which are beyond the Company’s control, which could cause actual results to differ materially from such statements. Such factors include, but are not limited to, the general business environment, interest rate fluctuations that may affect operating margin, changes in laws and regulations affecting the Company’s business, the California real estate and job markets, and competitive conditions in the business and geographic areas in which the Company conducts its business and regulatory actions. In addition, these forward‐looking statements are subject to assumptions as to future business strategies and decisions that are subject to change. The Company makes no guarantees or promises regarding future results and assumes no responsibility to update such forward looking statements.

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