The government's $700-billion bailout plan probably comes too late to help such faltering lenders as FirstFed Financial Corp. of Los Angeles and Downey Financial Corp. of Newport Beach, which stuffed their investment portfolios with multibillion-dollar helpings of now-troubled mortgages, analysts said Sunday.
But the plan contains a provision that could assist large and highly diversified banks that take over troubled institutions so the government doesn't have to deal with them.
That would include JPMorgan Chase & Co., which last week bought Washington Mutual Bank, the nation's largest savings and loan, immediately after regulators shut it down, a Treasury Department spokeswoman said.
The government isn't inclined to provide major help to lenders that wounded themselves by becoming overly concentrated on originating and investing in mortgages as their main business line, said one person who worked on the bailout plan and spoke on condition of anonymity because of confidentiality agreements.
The bailout is instead aimed mainly at reestablishing a market for complex bonds linked to mortgages, so that huge banks and Wall Street firms can unload them and start making other loans again.
"All mortgage-backed securities are difficult to sell in the current market," said Guy Cecala, editor of Inside Mortgage Finance.
Of the $6.9 trillion in these securities outstanding, bonds that are not from government-linked entities such as the Federal Housing Administration, Veterans Administration, Fannie Mae or Freddie Mac are "where the most relief is needed," he said.
There are about $2 trillion of these so-called non-agency securities, of which about $1.5 trillion currently have virtually no buyers because they are backed by subprime loans to the least creditworthy borrowers or Alt-A mortgages. The Alt-A category includes the "liar loans" that didn't require borrowers to verify their earnings or assets.
The government presumably would target these for purchase, Cecala said.
But the government was not immediately making clear what would be purchased and at what price, said Jennifer Zuccarelli, a spokeswoman for U.S. Treasury Secretary Henry M. Paulson.
FirstFed Financial and Downey Financial are not big holders of these mortgage-backed securities. They are the parents of First Federal Bank of California and Downey Savings -- S&Ls that specialized in a kind of mortgage that got lenders in hot water when home prices plummeted.
