Deferred Compensation Plan

Exhibit 10.6

Downey Financial Corp.
Deferred Compensation Plan
Plan Summary

2006 Plan Year - Please review this Summary carefully, as it describes recent tax law changes which affect this plan.

The operation of the Plan, and this Summary and the Election Form which describes the Plan, is intended to comply with the provisions of newly enacted section 409A of the Internal Revenue Code ("Code"). This Summary represents interim changes to the Plan that are required for the 2006 calendar year and the related elections. Because regulatory guidance concerning section 409A has only recently been released, and it is anticipated that additional guidance (either formal or informal) will be issued prior to December 31, 2006, the Plan may be amended to reflect such changes. If the operation of the Plan or any portion of this Summary or Election Form conflicts with the requirements of section 409A, the Company will operate the Plan and may amend the documents, including the Election Form, to reflect such guidance and to comply with section 409A.

Downey Financial Corp.
Deferred Compensation Plan
Summary

Introduction

Downey Financial Corp. (the "Company") is pleased to provide the Downey Financial Corp. Deferred Compensation Plan (the "Plan"). This Plan provides an opportunity for attractive pre-tax savings to assist eligible employees in wealth accumulation.

What does the Plan do for you?

The Plan allows you to defer a portion of your Total Annual Compensation, Bonus/Incentive earnings, or Director Fees. This reduces your current taxable income and allows you to save on a pre-tax basis. For example, if you defer $10,000 and are in a 40% tax bracket, your taxable income is reduced by $10,000 and you have $10,000 in your deferred compensation account earning interest as opposed to $6,000 invested after-tax.

Your deferred compensation account also accumulates interest on a tax-deferred basis. Not only are pre-tax dollars invested, but the earnings on the account grows on a pre-tax basis.

Crediting Interest Rate

The interest crediting rate for any initial deferrals made in the 2006 Plan Year will be based on Downey’s highest corresponding CD term rate (two-year CD rate for two year deferrals, five year CD rate for five and ten year deferrals). This rate will be based on the corresponding deposit rate in effect on January 1, 2006.

Plan Features

During the annual enrollment period, you will have the opportunity to:

• Defer pre-tax compensation.
  • Defer up to 100% of your next year’s Total Annual Compensation, Bonus/Incentive Earnings, or Director fees.
• Earn attractive interest rates on a tax-deferred basis under the Plan.
  • Rate announced January 1^st
• Confirm scheduled distributions from the Plan for eligible deferrals.
• Elect to rollover (re-defer) all or a portion of your prior deferred balances as provided in the Plan.

Downey Financial Corp.
Deferred Compensation Plan
Summary

Each year, you will be provided with an annual benefit statement documenting deferrals made during the year, interest applied, and a total Account Balance.

Questions & Answers

A more detailed description of the Plan is included in the following Question and Answer (Q&A) section.

Plan Objectives

Eligibility

Contributions

Downey Financial Corp.
Deferred Compensation Plan
Summary

Downey Financial Corp.
Deferred Compensation Plan
Summary

Distributions

• Unforeseeable Emergency. Distributions will occur in certain situations involving severe financial hardship, subject to approval by the Plan Committee. The amount distributed will be limited to the amount necessary to satisfy the hardship (including any applicable taxes or penalties resulting from the distribution). This amount will be paid 15 days after the Unforeseeable Emergency is determined, or as soon as administratively practicable, if later. The determination of Unforeseeable Emergency and the amount payable will be made by the Plan Committee in accordance with section 409A of the Code. The applicable definition of Unforeseeable Emergency is set forth in Appendix A.
• Separation From Service. If you separate from service with the Company as an employee or director, you will receive your Account Balance (including your Annual Deferral Amount credited to date) in the form you elected. Payments will begin 45 days after your separation from service, or as soon as administratively practicable, if later, unless your Scheduled Payout Date has already begun, in which case the payments that have begun will continue as scheduled. If you are deemed a Key Employee, you may not receive your account balance for a least six (6) months after your separation from service, so you will receive it on the last day of the 7^th month after your separation from service, or as soon as administratively practicable, if later. The definition of Key Employee for this purpose is set forth in Appendix A.
• Death. If you die before receiving your full benefit, the Beneficiary you name will receive the full remaining value of your Account Balance (and your Annual Deferral Amounts credited to date) as a survivor benefit 45 days after your death, or as soon as administratively practicable, if later.

Downey Financial Corp.
Deferred Compensation Plan
Summary

• Disability. "Disability" is limited to your being unable to engage in any substantial gainful activity due to a medically determinable physical or mental impairment which can be expected to result in death or to last for a continuous period of 12 months or more, or your receiving income replacement benefits for at least three months under the Company health plan due to a medically determinable physical or mental impairment which can be expected to result in death or last for a continuous period of at least 12 months. If you are disabled, you will receive your Account Balance and your Annual Deferral Amount credited to date in the form you elected 45 days after your disability is determined to begin, or as soon as administratively practicable, if later, unless your Scheduled Payout Date has already begun, in which case the payments that have begun will continue as scheduled.
• A Change in Ownership or Effective Control of the Company. If a Change in Control occurs before you receive your full benefit, you will receive the value of your remaining Account Balance (and your Annual Deferral Amount credited to date) 45 days after the Change of Control, or as soon as administratively practicable, if later. The definition of Change of Control is set forth in Appendix A.

Downey Financial Corp.
Deferred Compensation Plan
Summary

Downey Financial Corp.
Deferred Compensation Plan
Summary

Downey Financial Corp.
Deferred Compensation Plan
Summary

Plan Administration

These questions and answers provide a summary description of the Deferred Compensation Plan (Plan). For a complete description of Plan provisions and benefits, please refer to the information contained in the Election Form. If any conflicts arise between this summary description and the Election Form, the Election form will prevail.

Downey Financial Corp.
Deferred Compensation Plan
Summary

Appendix A: Definitions.

          "Change in Control" means the first to occur of any of the following events and shall be interpreted pursuant to section 409A of the Code.

                    (a)          When any person or persons acting as a group ("persons") (as those terms are used under section 409A of the Code and applicable guidance), other than the McAlister Family Trust, acquires ownership of stock that, together with such stock held by such "persons," constitutes more than 50% of the fair market value of the Company, or acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition of such "persons"), 35% or more of the Company’s capital stock representing the total voting power of the Company;

                    (b)          During any period of 12 months, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by the Company’s shareholders of the new directors was approved by a vote of at least a majority of the directors still in office who were directors at the beginning of the period; or

                    (c)          Forty percent or more of the gross fair market value of all the assets of the Company are sold or otherwise transferred to "persons" that are not within a "controlled group of corporations" (as defined in Section 1563 of the Internal Revenue Code of 1986, as amended, and as modified by section 409A) in which the Company is a member during the 12-month period ending on the date of the most recent acquisition by such "persons".

          "Disability" means being unable to engage in any substantial gainful activity due to a medically determinable physical or mental impairment which can be expected to result in death or to last for a continuous period of 12 months or more, or receiving income replacement benefits for at least three months under the Company health plan due to a medically determinable physical or mental impairment which can be expected to result in death or last for a continuous period of at least 12 months.

          "Key Employee" means the following. For the 12-month period beginning on the first day of the 4^th month following the December 31 "identification date" (i.e., April 1 to March 30), a Key Employee is any one who, at any time during the 12-month period ending on the December 31 of the preceding year (the "identification date"), (i) is an officer of the Company with annual compensation greater than $130,000 (indexed as provided under the Internal Revenue Code), (ii) is a 5% owner of the Company, or (iii) is a 1% owner of the Company with annual compensation of more than $150,000 (indexed under the Internal Revenue Code). For purposes of clause (i), no more than the lesser of 50 employees or 10%

Downey Financial Corp.
Deferred Compensation Plan
Summary

of the Company’s controlled group employees shall be considered officers. The determination of what constitutes a Key Employee shall be made by the Plan Committee using the guidance set forth under section 416(i) of the Code, as amended by section 409A and implementing guidance.

          "Unforeseeable Emergency" means your incurring a severe financial hardship from an unanticipated emergency that is caused by an event beyond your control due to (a) an illness or accident involving you or your dependents (as defined in section 152(a) of the Code), (b) a loss of property due to casualty, or (c) such other extraordinary and unforeseeable circumstances arising as a result of events beyond your control, all as determined in the sole and absolute discretion of the Company in accordance with the regulations under section 409A of the Code. Pursuant to those regulations, an unforeseen emergency shall not be deemed to occur to the extent the emergency is or may be relieved through reimbursement or compensation by insurance or otherwise, by liquidation of your assets, to the extent such liquidation would not cause severe financial hardship, or by cessation of deferrals under the Plan. For purposes of this definition, "you" and "your" will refer to you or your beneficiary entitled to receive benefits under this Plan.

DOWNEY FINANCIAL CORP.
ELECTIVE DEFERRED COMPENSATION PLAN
ELECTION FORM

          I acknowledge that as an employee or director of Downey Financial Corp., a Delaware Corporation (the "Company"), or an employee or director of a subsidiary of the Company, I have been offered the opportunity to participate in the Downey Financial Corp. elective deferred compensation plan (the "Plan") established and adopted by the Company and its subsidiaries.

          I hereby elect to participate in the Plan and irrevocably authorize the Company or its subsidiaries to make the appropriate deductions from my 2006 compensation at the appropriate periodic payment dates, as indicated on this form.

Crediting of Interest-Equivalent

          Until the payout date (as defined below), I understand that the amounts so deferred will be credited with an interest-equivalent. Such interest-equivalent will be computed as amounts are deferred and will be computed in the same manner as compound interest. The interest-equivalent for the election year will be computed based on Downey’s highest corresponding CD term rate in effect on January 1, 2006.

          I further understand that I may be accorded one or more elections (at the sole and absolute discretion of the Company) to extend the payout date for five (5) additional years. In the case of such an election, I understand that the rate(s) for such additional deferral year(s) will be based on Downey’s highest five (5) year deposit rate and that the interest-equivalent will then be computed in the same manner as interest with annual compounding.

Payout

          I understand that, except as provided below, I will receive a payout from the Company or its subsidiaries, in the form and manner I elected above. Notwithstanding the foregoing, I further understand that I may be accorded one or more elections (at the sole and absolute discretion of the Company) to extend the payout date beyond normal payout or extended payout for five (5) additional years. In the case of such an election, I understand that the actual payout date shall be determined in accordance with such additional election, and that such election shall be made not later than 12 months in advance of the previously Scheduled Payout Date.

          I acknowledge that I may not voluntarily amend the payout schedule set forth above. I further acknowledge that I will receive an earlier payment upon Death, Unforeseeable Emergency, or Change of Control of the Company, or, if my payments have not yet begun, upon my Separation from Service or Disability, as described below. I further acknowledge that there may be some situations permitted under section 409A in which my payment may be accelerated or delayed, as set forth in the accompanying memorandum (e.g., the need to avoid violation of federal securities laws). Such determinations shall be made in the sole and absolute discretion of the Company and in accordance with the rules of section 409A of the Code.

          Death. Payout shall be accelerated and made in a lump sum 45 days after my death or as soon as administratively practicable, if later.

          Unforeseeable Emergency. Payment will begin 15 days after a determination of unforeseeable emergency, or as soon as administratively practicable, if later. "Unforeseeable Emergency" is defined in Appendix A of the Plan Summary.

          Change of Control. Payment will begin 45 days after a Change of Control, or as soon as administratively practicable, if later. "Change of Control" is defined in Appendix A of the Plan Summary.

          Disability. Unless a Scheduled Payout Date has already begun, payments will be made 45 days after disability is determined to begin, or as soon as administratively practicable, if later. Payments will be made in the manner I elected. "Disability," is defined in Appendix A of the Plan Summary.

          Separation from Service. Unless a Scheduled Payout Date has already begun, payments will be made 45 days after termination of my employment or directorship for any reason, or as soon as administratively practicable, if later. Payments will be made in the manner I elected. Key Employees as defined in Appendix A of the Plan Summary may not receive a payout for a least six months after separation from service and thus will receive payment on the last day of the 7^th month following separation from service.

Unsecured Creditor

          I acknowledge that my participation in the Plan gives me only the status of an unsecured general creditor of the Company or a subsidiary and that assets of the Company or a subsidiary that might have been available to pay benefits to me under the Plan are subject to the claims of other general creditors of the Company or the subsidiary, as the case may be.

Beneficiary Designation

          In the event I die prior to full payout to me hereunder, I hereby elect for deferred payments otherwise payable to me hereunder to be paid to my designated beneficiary as set forth in a separate beneficiary designation form that I will supply to the Company.

          In the event I choose to change my designated beneficiary, I acknowledge that such change shall be effective only if I provide written notice of such change to the Company or its successor in form and under procedures reasonably satisfactory to the Company or its successor, and that such change shall only be effective upon receipt of such written notice by the Company or its successor. In the event I designate no contingent beneficiary, or if my designated beneficiary shall not survive to receive all payments due hereunder, or if the Company or its successor is unable to locate my designated beneficiary after my death after reasonable efforts, I acknowledge that any payments that would have been made to a designated beneficiary shall instead be paid to my surviving spouse; provided that, if I have no surviving spouse, the payments will be paid to my estate.

General Provisions

          1.          This election is subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted by the Company pursuant to the Plan. It is understood that the election and the Plan will be interpreted and administered in accordance with section 409A of the Internal Revenue Code.

          2.          I acknowledge that the Company and my employer are not providing me with advice, warranties, or representations regarding any of the legal, tax or business effects to me with respect to the Plan or this election. Neither the Company nor my employer represents that my participation in the Plan will result in tax deferral. I have been encouraged to seek legal, tax and business advice from my own legal, tax and business advisors prior to executing this election and have done so to the extent I have deemed appropriate.

          3.          The terms and conditions of this election or the Plan shall not be deemed to constitute a contract of employment between me and the Company or any of its subsidiaries. Such employment is hereby acknowledged to be an "at will" employment relationship that can be terminated at any time for any reason, with or without cause, unless expressly provided otherwise in a written employment agreement. Nothing in this election or the Plan shall be deemed to give me the right to be retained in the service of the Company or any of its subsidiaries, either as an employee or a director, or to interfere with the right of the Company or any of its subsidiaries to discipline or discharge me at any time.

          4.          I acknowledge that if I do not return this election form (executed by me) to the Company or its subsidiary within ten (10) days after receiving notice from the Company or subsidiary that the deferral election herein is available to me, such election shall be deemed waived.

          5.          I acknowledge that elective deferral elections shall be made available under the Plan by the Company or its subsidiaries to various persons and for various periods from time to time in the sole and absolute discretion of the Company and that I obtain no right to make subsequent deferral elections as a result of being selected for this or any other deferral election.

          6.          By signing this instrument, I acknowledge that I agree to be bound by the terms of this election.

          7.          I acknowledge that federal, state and local income tax withholding and payroll tax may apply as a result of participation in the Plan. I agree that such withholding may be accomplished with respect to the cash compensation (if any) due to me from the Company or its subsidiaries. If withholding pursuant to the foregoing sentence is insufficient (in the sole judgment of the Company) to satisfy the full withholding obligation, I agree that such withholding may be made from amounts otherwise payable to me hereunder.

          8.          The undersigned participant:

                      (a)    Understands that all rights and liabilities with respect to this deferral election are set forth in this form;

                      (b)    Agrees that the undersigned will comply with all the terms and conditions of the Plan; and

                      (c)    Acknowledges that this form and the Plan set forth the entire understanding between the undersigned and the Company and its subsidiaries and supersede all prior oral and written agreements on the subject of the deferred compensation election.