Ongoing charge-offs and modifications of single-family loans drove much of FirstFed Financial Corp.'s (FED) net loss of $51.6 million, or $3.77 per share, in the third quarter, up from a $35.5 million loss reported in the second quarter. The Los Angeles-based bank on Friday released preliminary third-quarter results, in which it disclosed $110.3 million in loan loss provision, up from the $90.2 million set aside in the previous quarter. The option ARM lending specialist also cited continued weakness in the California housing market as a factor that contributed to its Q3 loss provision, which showed a dramatic year-over-year increase from the $4.5 million allotted for loan losses one year ago. Single-family loans greater than 90 days delinquent or in foreclosure decreased to $445.2 million by Sept. 30, down from $491.7 million at the end of the second quarter. On the other hand, single-family loans less than 90 days delinquent increased to $212.1 million in the third quarter, up from the $207.7 million in the previous quarter. "The level of delinquent loans during 2008 was significantly impacted by adjustable-rate mortgages that reached their maximum allowable negative amortization and required an increased payment," the FirstFed report said. An estimated 1,560 loans totaling $722.8 million of FirstFed's portfolio were scheduled to recast during the first nine months of 2008, leaving 181 loans - $79.5 million - to recast later this year, according to the report. Modifications joined delinquencies as a main driver of FirstFed's numbers. Modified loans totaled $559 million at the end of September, up from the reported $308.7 by June and $108.1 million still earlier in the year, at the end of March. REO sales contributed $10.8 million in net gains during the third quarter, bringing the total 2008 nine-month net gains to $20.5 million. Loan originations for the quarter were $479.3 million, bringing the 2008 total to $1.3 billion, up dramatically from the $262.9 million and $702.8 million reported respectively for the third quarter and nine-month period in 2007. The third quarter numbers -- fueled by modifications, delinquencies and loss provisions -- came just days after an Oct. 24 filing by the company, which gave insight into FirstFed's troubled portfolio. Weak mortgage portfolio: a look at the SEC filing A recent 8-K filed with the Securities and Exchange Commission showed 22.3 percent of borrowers in First Fed’s $4.52 billion single-family mortgage portfolio were already underwater on their mortgages by the end of the company's second quarter. Underwater borrowers represented a significant risk of default; in fact, 41.4 percent of $653.7 million in borrower defaults on the books at the end of September emanated from borrowers estimated by the bank to be upside down on their mortgage, according to the SEC filing. So 22.3 percent of the portfolio was driving 41.4 percent of defaults near the end of the third quarter. Write to Diana Golobay at Disclosure: The authors held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.