THE CORPORATE LIBRARY

Related Party Transactions and Outside Related Director Information

Downey Financial Corp. (DSL)

3/6/2006 Proxy Information

Ms. Wolfe served as Executive Vice President and Chief Administrative Officer of Downey Savings and Loan Association, F.A. (the Bank) from January 2001 until her retirement in May 2004.

Mrs. Olson is the daughter of Maurice L. McAlister, Chairman of the Board of both Downey and the Bank.

Maurice L. McAlister is President of McAlister Investments, Inc., an affiliate of Downey.

Mr. McQuarrie is the son of Downey's co-founder, the late Gerald McQuarrie.

During 2005, employees of Downey and the Bank provided accounting and related services to Maurice L. McAlister, Chairman of Downey’s Board of Directors, certain members of Mr. McAlister’s family and certain of his controlled affiliates. The aggregate value of these services was approximately $74,454. Downey and the Bank have been fully reimbursed for the services provided.

From time to time, the Bank’s Board has approved having the Bank enter into commercial leases with California partnerships in which Lester C. Smull, a director of Downey and the Bank, is the managing general partner. These commercial leases are for a total of five Bank branches, one each in Huntington Beach, Dana Point, Chino, Simi Valley and Mission Viejo, California, and a branch regional office in Chino, California. The Bank’s aggregate rental obligations on the six leases as of February 2006 is approximately $37,280 per month. Management believes that the terms of the leases, including the monthly rent, are at least as favorable to the Bank as prevailing terms that could be obtained from a non-affiliated person.

The Bank offers loans to directors, officers and employees of Downey, the Bank and their respective subsidiaries. These loans are made in the ordinary course of business and, in the judgment of management, do not involve more than the normal risk of collectability or present other unfavorable features. The loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions involving non-affiliated persons.

Over a period of approximately 30 years, the Bank has made various loans to Director Smull, in his individual capacity, to the Smull Family Trust and to a number of California partnerships in which Director Smull is a managing general partner. As of December 31, 2005, the Bank had loans outstanding to Director Smull or his related partnerships in an aggregate amount of approximately $21.3 million. Each of the loans to Director Smull or his related partnerships (i) was made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions involving non-affiliated persons; and (ii) did not involve more than the normal risk of collectability or present other unfavorable features.

The Bank has made various loans to McMillin Companies, LLC, where Director Hunter is Executive Vice President of Planning and Acquisition. As of December 31, 2005, the Bank had loans outstanding to McMillin Companies, LLC and related entities in an aggregate amount of $4.6 million. In addition, DSL has equity investments in real estate ventures associated with McMillin Companies, LLC, specifically (as of December 31, 2005) a $1.3 million investment in Cristal @ Morgan Hill, LLC, a $13.9 million investment in Montevina @ Morgan Hill, LLC, and a $12.0 million investment in Ruffino @ Morgan Hill, LLC. Each of the loans to, and equity investments with, the McMillin-related entities (i) was made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions involving non-affiliated persons; and (ii) did not involve more than the normal risk of collectability or present other unfavorable features.

3/15/2005 Proxy Information

During 2004, employees of Downey and the Bank provided accounting and related services to Maurice L. McAlister, Chairman of Downey's Board of Directors, certain members of Mr. McAlister's family and certain of his controlled affiliates. The aggregate value of these services was approximately $70,724. Downey and the Bank have been fully reimbursed for the services provided.

Mr. McAlister is Chairman of Downey Financial Corp. and Chairman and co-founder of Downey Savings and Loan Association, F.A. In addition, he is President of McAlister Investments, Inc., an affiliate of Downey Financial Corporation. Mr. McAlister served as President of Downey Savings and Loan Association, F.A. from 1957 until his retirement in September 1991.

From time to time, the Bank's Board has approved having the Bank enter into commercial leases with California partnerships in which Lester C. Smull, a director of Downey and the Bank, is the managing general partner. These commercial leases are for a total of five Bank branches, one each in Huntington Beach, Dana Point, Chino, Simi Valley and Mission Viejo, California, and a branch regional office in Chino, California. The Bank's aggregate rental obligations on the six leases as of February 2005 is approximately $36,656 per month. Management believes that the terms of the leases, including the monthly rent, are at least as favorable to the Bank as prevailing terms that could be obtained from a non-affiliated person. Loans to Management and Directors

The Bank offers loans to directors, officers and employees of Downey, the Bank and their respective subsidiaries. These loans are made in the ordinary course of business and, in the judgment of management, do not involve more than the normal risk of collectability or present other unfavorable features. The loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions involving non-affiliated persons.

Over a period of approximately 29 years, the Bank has made various loans to Director Smull, in his individual capacity, to the Smull Family Trust and to a number of California partnerships in which Director Smull is a managing general partner. As of December 31, 2004, the Bank had loans outstanding to Director Smull or his related partnerships in an aggregate amount of approximately $21.3 million. Each of the loans to Director Smull or his related partnerships (i) was made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions involving non-affiliated persons; and (ii) did not involve more than the normal risk of collectability or present other unfavorable features.

The Bank has made various loans to McMillin Companies, LLC, where Director Hunter is Executive Vice President of Planning and Acquisition. As of December 31, 2004, the Bank had loans outstanding to McMillin Companies, LLC and related entities in an aggregate amount of $14.6 million. In addition, DSL has equity investments in real estate ventures associated with McMillin Companies, LLC, specifically (as of December 31, 2004) a $4.5 million investment in Cristal @ Morgan Hill, LLC, a $12.6 million investment in Montevina @ Morgan Hill, LLC, and a $10.7 million investment in Ruffino @ Morgan Hill, LLC. Each of the loans to, and equity investments with, the McMillin-related entities (i) was made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions involving non-affiliated persons; and (ii) did not involve more than the normal risk of collectability or present other unfavorable features.

3/15/2004 Proxy Information

Ms. Wolfe was an employee of Downey Savings and Loan Association, F.A. (the Bank) for approximately 30 years, until her retirement on May 31, 2004.

Transactions with Management and Certain Business Relationships

During 2003, employees of Downey and the Bank provided accounting and related services to Maurice L. McAlister, Chairman of Downey’s Board of Directors, certain members of Mr. McAlister’s family and certain of his controlled affiliates. The aggregate value of these services was approximately $70,046. Downey and the Bank have been fully reimbursed for the services provided.

From time to time, the Bank’s Board has approved having the Bank enter into commercial leases with California partnerships in which Lester C. Smull, a director of Downey and the Bank, is the managing general partner. These commercial leases are for a total of four Bank branches, one each in Huntington Beach, Dana Point, Chino and Mission Viejo, California. The Bank’s aggregate rental obligations on the four leases as of February 2004 is approximately $26,135 per month. Management believes that the terms of the leases, including the monthly rent, are at least as favorable to the Bank as prevailing terms that could be obtained from a non-affiliated person.

Prior to re-joining Downey Savings and Loan Association, F.A. (the Bank) as Executive Vice President and Chief Lending Officer in April 1994, Ms. Wolfe served as Senior Vice President and Manager of Mortgage Lending for Liberty National Bank from September 1993 to April 1994. She served as Executive Vice President and Chief Administrative Officer of the Bank from January 2001 until her retirement in May 2004.

Loans to Management and Directors

The Bank offers loans to directors, officers and employees of Downey, the Bank and their respective subsidiaries. These loans are made in the ordinary course of business and, in the judgment of management, do not involve more than the normal risk of collectability or present other unfavorable features. The loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions involving non-affiliated persons.

Over a period of approximately 27 years, the Bank has made various loans to Director Smull, in his individual capacity, to the Smull Family Trust and to a number of California partnerships in which Director Smull is a managing general partner. As of December 31, 2003, the Bank had loans outstanding to Director Smull or his related partnerships in an aggregate amount of approximately $19.3 million. Each of the loans to Director Smull or his related partnerships (i) was made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions involving non-affiliated persons; and (ii) did not involve more than the normal risk of collectability or present other unfavorable features.

On December 20, 2000, the Bank made a loan to Director Kouri and his wife Bobbie Jean Kouri in the amount of $260,000, secured by 13,639 shares of Downey stock held by the Kouris. As of December 31, 2003, the outstanding balance of the loan was $229,944.

The Bank has made various loans to McMillin Companies, LLC, where Director Hunter is Executive Vice President of Planning and Acquisition. As of December 31, 2003, the Bank had loans outstanding to McMillin Companies, LLC and related entities in an aggregate amount of $16.7 million. In addition, DSL Service Company has equity investments in real estate ventures associated with McMillin Companies, LLC, specifically (as of December 31, 2003) a $13.2 million investment in McMillin Morgan Hill, LLC and a $5.6 million investment in Cristal @ Morgan Hill, LLC. Each of the loans to, and equity investments with, the McMillin-related entities (i) was made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions involving non-affiliated persons; and (ii) did not involve more than the normal risk of collectability or present other unfavorable features.

3/6/2003 Proxy Information

Brent McQuarrie is the son of Downey's co-founder, the late Gerald McQuarrie. Cheryl Olson is the daughter of Maurice L. McAlister, Chairman of Downey's Board of Directors.

Director Kouri did receive a $260,000 loan from Downey in December 2000 which is secured by his shares of Downey stock. The loan is current and the Board determined that this loan did not change its independence findings.

Mr. McAlister has substantial relationships with Downey, owns a substantial amount of Downey's common stock and receives substantial fixed, nondiscretionary compensation (beyond director's fees) under the Founder Retirement Agreement, as noted in this Proxy Statement. However, since the primary independence emphasis under the proposed NYSE Rules is on independence from management, the Board concluded that Mr. McAlister qualifies as independent because Mr. McAlister is not (and never has been) beholden to the management team which succeeded him and the compensation he receives from Downey is fixed and nondiscretionary. Moreover, as a substantial Downey stockholder, Mr. McAlister's personal interests are aligned with other shareholders' interests; and in the commentary to its proposals, the NYSE noted that it does not view ownership of a significant amount of stock, by itself, as a bar to an independence finding.

Mr. Smull and related entities have obtained several loans from Downey which, in the aggregate, exceed the 2% of capital threshold. Mr. Hunter is an officer of McMillin Companies, an entity which also has received several construction and development loans from Downey and is an equity partner in certain developments with DSL Service Company, an affiliate of Downey. These debt and equity transactions, in the aggregate, exceed the 2% of capital threshold.

On November 1, 2002, the Bank's Board approved a proposed transaction in which the Bank would enter into a commercial lease with Business Properties #22, a California General Partnership ("BP #22"), to lease premises from BP #22 for a Huntington Beach branch. Lester C. Smull, a director of Downey and the Bank, and one of the three members of Downey's Compensation Committee, is the managing general partner of BP #22. It is expected that the definitive lease agreement will contain customary terms and conditions, provide for a term of five years, charge rent at the rate of $8,000 per month, subject to increases of 3% every five years, and provide for two consecutive five-year options to extend the term. Management believes that the terms of the proposed lease arrangement, including the monthly rent, are at least as favorable to the Bank as prevailing terms that could be obtained from a non-affiliated person.