S&P cuts Downey Financial

Standard & Poor's said it lowered ratings on Downey Financial Corp. and its subsidiaries to BBB-/A-3 from BBB/A-2.

S&P revised the outlook on Downey to stable from negative.

S&P said the downgrade reflects the agency's increased concerns regarding Downey's credit performance and expectation that credit costs and operating environment will continue to challenge profitability in the near term.

Downey's proactive management and focus on prime lending has allowed the company to fare much better than most other mortgage companies, but Downey suffered two consecutive credit-related quarterly losses, which caused a loss for 2007, S&P added.

Ratings reflect the company's concentration in the residential mortgage business, very strong risk-based capitalization and good funding and liquidity, the agency said.

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