Downey in Flames

At first glance the turmoil at Downey Savings & Loan looks depressingly familiar. Yet Downey was hardly like the reckless lenders that inflated the housing bubble. For 50 years Maurice (Mac) McAlister, Downey's 83-year-old founder, kept tight control over Downey and its money. As the housing crisis metastasized last year, it seemed that McAlister's conservative style had saved the bank. Downey maintained a 28% cushion on its loans' collateral. He'd miscalculated. The real estate run-up had carried values so high that when home prices crashed, they quickly tore through the bank's fat equity cushion. As delinquent loans soared, Downey started going after customers accusing borrowers and brokers of lying on loan applications and appraisers of inflating home values.