Unable to repair a loan portfolio filled with billions of dollars in decaying adjustable-rate mortgages, FirstFed Financial Corp., one of L.A.’s oldest and largest financial institutions, was closed late Friday by federal and state regulators.

The closure ends a tumultuous period for the 80-year-old savings and loan, which, despite sustaining substantial losses for more than a year, was the longest surviving lender of risky option adjustable-rate mortgage loans.

FirstFed, the parent of First Federal Bank of California, had $6.1 billion in assets and $4.5 billion in deposits as of Sept. 30. That made it the sixth biggest depository institution in Los Angeles County.

OneWest Bank, based in Pasadena, reached an agreement with the Federal Deposit Insurance Corp. to assume all of FirstFed’s deposits. OneWest also acquired essentially all of the thrift’s assets, including 39 branches, which will reopen Saturday under new ownership. OneWest now has 72 branches in the L.A. area.

With the acquisition, OneWest becomes the biggest depository institution in Los Angeles County, with assets apparently exceeding $24 billion.

“This transaction is consistent with our strategy to expand the OneWest footprint in our home market of Southern California,” said Steven Mnuchin, chairman of OneWest Bank, in a statement.

OneWest’s management has experience sifting through failed mortgage portfolios. The thrift’s predecessor, IndyMac Bank, had been one of the largest originators of risky Alt-A mortgage loans during the housing boom. But as the loans went bad, the institution became one of the largest casualties of the bust.

FirstFed is the fifth local federally insured institution to fail in 2009, and the first since California National Bank was shuttered Oct. 30. Regulators said the closure, carried out by the Office of Thrift Supervision, is expected to cost the FDIC’s deposit insurance fund $146.3 million.

FirstFed customers will have full access to their accounts over the weekend, the FDIC said.

FirstFed has been a fixture in the area since opening its doors in downtown Santa Monica in 1929, taking deposits and offering personal and home mortgage loans. In 1983, the institution began offering adjustable-rate mortgages, which would become a core product offering.

Over the past decade, however, with Wall Street securitizing mortgage loans in large numbers, competition grew heated, driving down underwriting standards. In a recent interview, FirstFed executives admitted to dropping their own standards during the boom times, but said they tried to cut back well before the crash.

Most of the thrift’s recent problems stem from 2005, when FirstFed originated $4.4 billion in single-family loans, primarily option-ARMs. Uneasy with the rapidly growing loan portfolio, the thrift in late 2005 began requiring proof of income for all mortgages, and business dropped by half almost immediately.

With cracks in the housing market beginning to show, FirstFed in 2007 embarked upon an aggressive and moderately successful loan modification program to help stave off problems in its option-ARM portfolio.

Following a $245 million loss in the fourth quarter of 2008, regulators issued a cease and desist order directing the thrift to raise capital. Executives took drastic measures, including laying off 10 percent of its workforce and selling real estate, but were unable to raise new capital.

In an interview in June, Babette Heimbuch, then chief executive of the thrift, said she hoped regulators would let the institution continue working out its problems, but she acknowledged the possibility of failure.

“We really feel like we’re getting a handle on this – not to say that we’re not struggling and we don’t have to raise capital, but we feel like we’re getting our arms around the risk,” she said. “I’d hate to see us get wiped out. As a community bank, we’re not systemically important, but we’re important to our communities.”

Heimbuch stepped down Dec. 9 and James Giraldin, the former chief operating officer, took over as chief executive. Neither Giraldin nor Heimbuch could be reached for comment Friday.

Over the past two years, many of the industry’s major option-ARM lenders, including Downey Savings & Loan in Newport Beach and BankUnited in Coral Gables, Fla., succumbed to loan losses and were seized by regulators. Others, including Wachovia in Charlotte, N.C., were acquired by competitors.

Experts point to FirstFed’s early loan modification efforts as the primary reason that the thrift outlasted the other big option-ARM lenders, but the failure had begun to be seen by many as an inevitability.

FirstFed is the 140th FDIC-insured institution to fail in 2009. The closure was the fifth in Los Angeles County this year. Besides Cal National, the other local closures were Alliance Bank in February, First Bank of Beverly Hills in April and Mirae Bank in June.

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