FirstFed Financial Corp., parent to First Federal Bank of California, said Friday that mortgage losses likely led to a 64 percent drop in quarterly earnings at the Santa Monica, Calif.-based holding company. On a preliminary basis, fourth-quarter net income was reported at $8.4 million, or $.61 per share, compared to $33.4 million, or $1.97 per share, in the year-ago period. Delinquencies and non-accruals -- non-accruals refer to severe delinquencies 90+ days in arrears or in foreclosure -- have been skyrocketing at FirstFed. The bank reported that single-family non-accruals jumped to $179.7 million in Q4, up a stunning 116 percent from the third quarter alone. Delinquencies less than 90 days among single family loans rose to $236.7 million by the end of Q4 -- that's 231 percent over the $71.5 million recorded just one quarter earlier. The bank had first warned of delinquency problems during the fourth quarter on January 15. Against such staggering rises in both delinquencies and non-accruals, FirstFed said total allowances for loan losses reached just $128.1 million at year's end, net of provision expense and charge-off activity; that's a rise of just 16 percent in loss reserves relative to the $109.8 million on the books at the end of last year. Not surprisingly, FirstFed said that option ARMs hitting a forced recapitalization were "a contributing factor in the higher level of delinquent loans." During the fourth quarter of 2007, just over 1,800 borrowers, with loan balances of approximately $830 million, reached their maximum level of negative amortization and had a resulting increase in their required payment. The bank said that it estimated that another 2,400 loans totaling approximately $1.1 billion could hit their maximum allowable negative amortization during 2008. (To make it clear: that's $1.9 billion in forced resets against just $128.1 million currently reserved for loan losses.) FirstFed holds a portfolio of $3.2 billion in one-year adjustable rate mortgages, including payment option mortgages; it holds another $1.1 billion in three-to-five year ARMs (also including payment option products). Hinting at how the drop in California home prices is affecting servicing operations, FirstFed said it wrote down $2.4 million of $21 million in REO inventory. REO has skyrocketed at FirstFed as well; the bank held just $1.1 million in REO one year ago. For more information, visit