Downey Financial 8-K Regulation FD Disclosure

Table of Contents

EXHIBIT 99.1

DOWNEY FINANCIAL CORP.
N E W S   R E L E A S E	For further information contact: Thomas E. Prince Chief Operating Officer and Chief Financial Officer (949)509-4440

DOWNEY FINANCIAL CORP. ANNOUNCES THIRTEEN
MONTH SELECTED FINANCIAL DATA

          Newport Beach, California — September 15, 2005— Downey Financial Corp. (NYSE: DSL) today released monthly selected financial data for the thirteen months ended August 31, 2005.

          In addition to releasing its selected financial figures, Downey wishes to use this opportunity to address recent questions regarding single family adjustable rate mortgage loans (also known as option ARMs) and how they work. These home loans allow for negative amortization; that is, borrowers are permitted to add to their loan balance in certain circumstances.

          Option ARMs are not new, as Downey and other California institutions have offered them to borrowers since the 1980’s, even before the real estate downturn in California that occurred in the late 1980’s and early 1990’s.

          As of August 31, 2005, $12.8 billion of our one-to-four unit adjustable rate mortgages were subject to negative amortization, of which $89 million, or 0.7%, represented the amount of negative amortization included in the loan balance. At origination, these loans had a weighted average loan-to-value ratio of 69%. The maximum home loan Downey will make is 90% of the property’s appraised value; however, any loan in excess of 80% of appraised value requires private mortgage insurance. Typically, this insures the loan down to a 75% loan-to-value ratio.

          Downey’s option ARM products have an interest rate that adjusts monthly, with a required minimum monthly loan payment that adjusts annually. The initial interest rate ("start rate") is lower than the fully-indexed rate and is the effective interest rate for the loan only during the first month. After the first month, interest accrues at the fully-indexed rate. The initial start rate, however, is used to calculate the required minimum monthly loan payment for the first twelve months. The borrower is required to make the minimum monthly payment, but retains the option to make a larger payment to avoid negative amortization and to reduce loan principal. If the borrower chooses to make the minimum required monthly loan payment and the interest accrual based on the fully-indexed rate results in monthly interest due exceeding the payment amount, the loan balance will increase by the difference. These payment options are clearly explained on the borrower’s monthly statement.

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          More particularly, these loans:

• currently limit negative amortization to 110% of the original loan amount;
• have a lifetime interest rate cap, but no periodic cap on interest rate adjustments; and
• include a payment cap that limits the change in required minimum monthly loan payments to 7.5% per year, unless the loan is recast. A loan is recast every five years or when the loan balance reaches 110% of the original loan balance (the maximum level of negative amortization currently permitted).

          With the negative amortization and loan-to-value limitations in place, the loan-to-value ratio over the life of an option ARM could never exceed 88% of the original appraised value, assuming the loan reached 110% of the original loan balance and had an 80% loan-to-value ratio at origination (the maximum permitted without the borrower obtaining private mortgage insurance).

          Downey has not and does not qualify an applicant for an option ARM based on the initial start rate of the loan. Currently, Downey qualifies applicants for these loans using a fully-amortizing payment calculated from the higher of the fully-indexed rate or:

• for prime borrowers:
  • 5.50% for owner occupied; or
  • 5.75% for non-owner occupied.
• for subprime borrowers (Alt. A and A- only):
  • 6.50% for owner occupied; or
  • 6.75% for non-owner occupied.

          Downey Financial Corp. is the parent company of Downey Savings and Loan Association, F.A., with assets of $16.5 billion and 168 branches throughout California and four in Arizona.

Certain statements in this release may constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. Forward-looking statements do not relate strictly to historical information or current facts. Some forward-looking statements may be identified by use of terms such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could" or "may." Downey’s actual results may differ significantly from the results discussed in such forward-looking statements. Factors that might cause such a difference include, but are not limited to, economic conditions, competition in the geographic and business areas in which Downey conducts its operations, fluctuations in interest rates, credit quality and government regulation. Downey does not update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made.

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Table of Contents

DOWNEY FINANCIAL CORP. AND SUBSIDIARIES
Monthly Selected Financial Data (Unaudited)

			Aug. 31,			Jul. 31,			Jun. 30,			May 31,			Apr. 30,			Mar. 31,			Feb. 28,			Jan. 31,			Dec. 31,			Nov. 30,			Oct. 31,			Sep. 30,			Aug. 31,
(Dollars in Thousands)			2005			2005			2005			2005			2005			2005			2005			2005			2004			2004			2004			2004			2004
Balance sheet summary
Total assets			$16,505,777			$16,413,978			$16,612,127			$16,745,285			$16,906,123			$16,893,337			$16,233,501			$15,923,522			$15,648,808			$15,203,688			$15,875,054			$15,639,464			$15,230,593
Loans receivable held for investment, net			14,567,033			14,429,760			14,492,386			14,425,685			14,529,387			14,473,108			14,424,639			13,969,002			13,423,999			12,845,864			12,661,820			13,411,146			12,935,889
Loans held for sale, at lower of cost or fair value			743,803			803,520			914,277			1,124,705			1,141,487			1,255,104			678,918			839,702			1,118,475			1,234,751			1,977,140			845,913			859,695
MBS available for sale, at fair value			286			290			292			293			295			296			299			302			304			311			313			315			317
Cash, investment securities and FHLB stock			917,964			894,302			929,485			927,229			966,502			898,940			861,234			858,270			860,124			842,832			788,124			1,048,979			1,127,900
Deposits			11,637,680			11,334,706			11,042,072			10,697,617			10,416,357			10,309,077			10,036,931			9,774,096			9,657,978			9,693,558			9,684,261			9,551,333			9,453,724
FHLB advances and other borrowings			3,203,623			3,490,750			4,002,757			4,492,992			4,983,058			5,093,874			4,716,531			4,707,152			4,559,622			4,012,823			4,698,051			4,670,604			4,274,277
Senior notes			198,031			198,018			198,004			197,991			197,977			197,964			197,951			197,938			197,924			197,911			197,898			197,886			197,873
Non-performing assets as a % of total assets			0.16	%		0.13	%		0.15	%		0.17	%		0.19	%		0.17	%		0.21	%		0.23	%		0.22	%		0.26	%		0.24	%		0.25	%		0.26	%
Loan activity for the month ended
Loans for investment portfolio:
	Originations and purchases:
		Residential one-to-four units	$666,123			$ 397,213			$ 492,049			$ 279,148			$ 368,546			$ 357,944			$ 662,663			$ 722,400			$ 807,055			$ 413,452			$ 488,268			$ 704,104			$ 649,596
		Residential one-to-four units – subprime	34,586			31,589			35,202			41,009			56,425			63,120			56,218			53,986			77,454			65,761			74,821			80,264			80,449
		All other	8,378			18,720			32,253			27,751			34,096			55,220			38,413			58,451			56,048			42,745			42,445			49,791			56,844
	Repayments		(621,323		)	(526,645		)	(503,042		)	(462,942		)	(419,619		)	(449,098		)	(312,994		)	(281,557		)	(377,560		)	(338,681		)	(372,449		)	(360,602		)	(359,596		)
Loans for sale:
	Originations and purchases		599,637			713,274			810,051			1,010,710			945,286			1,158,244			493,138			530,010			761,265			921,366			839,470			595,990			690,118
	Sales		(656,393		)	(817,516		)	(1,016,857		)	(1,024,658		)	(1,051,258		)	(568,609		)	(651,797		)	(809,381		)	(856,545		)	(1,641,107		)	(699,849		)	(607,335		)	(726,306		)
Mortgage loans serviced for others
Total			$11,096,345			$10,709,634			$10,287,991			$9,471,603			$8,608,622			$8,043,655			$7,614,692			$7,064,568			$6,672,984			$12,440,154			$11,038,703			$10,568,339			$10,169,574
With capitalized mortgage servicing rights:(a)
	Amount		2,277,835			2,247,326			2,249,030			2,248,824			2,243,492			2,207,403			2,175,539			2,144,177			2,100,452			3,320,091			9,924,548			10,075,028			10,130,863
	Weighted average interest rate		5.57	%		5.58	%		5.57	%		5.57	%		5.57	%		5.57	%		5.57	%		5.58	%		5.59	%		5.26	%		5.52	%		5.52	%		5.43	%
Interest rate spread data (b)
Weighted average yield:
	Loans and MBS		5.62	%		5.56	%		5.42	%		5.30	%		5.17	%		5.00	%		4.92	%		4.78	%		4.67	%		4.64	%		4.54	%		4.46	%		4.43	%
	Investment securities and FHLB stock		4.12			4.12			4.12			4.02			4.01			3.99			3.89			3.88			3.88			3.79			3.86			3.94			3.88
		Interest-earning assets yield	5.55			5.49			5.36			5.24			5.11			4.95			4.88			4.74			4.63			4.59			4.51			4.43			4.39
Weighted average cost:
	Deposits		2.67			2.53			2.46			2.38			2.26			2.14			2.04			1.97			1.89			1.83			1.81			1.80			1.77
	FHLB advances and other borrowings		3.90			3.74			3.57			3.41			3.23			3.08			2.90			2.78			2.77			2.63			2.38			2.28			2.16
	Senior notes		6.50			6.50			6.50			6.50			6.50			6.50			6.50			6.50			6.50			6.50			6.50			6.50			6.50
		Combined funds cost	2.98			2.86			2.80			2.73			2.62			2.50			2.37			2.29			2.23			2.13			2.06			2.02			1.96
Interest rate spread			2.57	%		2.63	%		2.56	%		2.51	%		2.49	%		2.45	%		2.51	%		2.45	%		2.40	%		2.46	%		2.45	%		2.41	%		2.43	%

(a)  Excludes loans sold or securitized prior to 1996 and loans sub-serviced without capitalized mortgage servicing rights.
(b)  Reflects month-end contractual yields and costs and excludes adjustments for non-accrual loans, net deferred costs to originate loans and the amortization of premiums and discounts.

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