CEO Employment Letter

Exhibit 10.16


January 20, 2004

Marangal I. Domingo
17232 SE 43rd Street
Issaquah, WA 98027

Dear Marangal I. Domingo:

Congratulations! On behalf of Downey Financial Corp. ("DFC"), I am pleased to offer you the position of Chief Executive Officer of DFC and Downey Savings and Loan Association, F.A. ("Downey Savings" and with DFC, collectively, "Downey"), pending approval of the Downey Board of Directors. You will also be appointed to the Board of Directors of DFC and Downey Savings, pending the approval of the DFC shareholders at our next annual shareholders meeting. Unless mutually agreed upon, we expect you to start no later than February 2, 2004, in our Newport Beach offices. You will report directly to the Chairman of Downey. This letter outlines the terms of your new position.

Compensation

Your base salary will be $750,000 per year.

You are also eligible for a bonus each year, up to $1 million per year, as follows: 1. If Downey' s return on equity ("ROE") for the year is at least 12.5%, your bonus will be $333,333. 2. If Downey' s ROE for the year is at least 14% on an annualized basis, then your bonus will be $666,667. 3. If Downey' s ROE for the year is 15% or more on an annualized basis, then your bonus will be $1 million.

For 2004 only, the ROE calculation will be based on the fourth quarter 2004 results, calculated on an annualized basis.

Your bonus, if any, will be paid to you by January 31st of the following year. You will be allowed to convert up to 100% of your bonus compensation into shares of stock of DFC based on the closing price of DFC stock on January 30 of the year the bonus is paid. You will receive the 2004 bonus only if you remain employed through December 31, 2004 or are terminated without cause prior to December 31, 2004. Should Downey terminate your employment without cause during 2004, you will be entitled to receive a pro-rated share of your annual bonus compensation as provided below in the Severance section. You will not be eligible to earn any bonus if you are terminated with cause.


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Mr. Marangal I. Domingo
January 20, 2004
Page -2-

Termination for "cause" shall mean: (i) your willful and continued failure to perform stated duties (other than a failure resulting from disability); (ii) commission by you of an act or acts resulting ...