Shares of Downey Financial ( DSL) were spiking more than 15% after activist investor Gerald J. Ford bought a big stake and suggested that the company was ripe for a takeover.

Hilltop Holdings ( HTH), the insurance company run by Ford, has purchased 1.89 million shares, or 7%, of Downey for approximately $63.4 million, according to a regulatory filing with the Securities and Exchange Commission on Monday.

The type of filing, a Schedule 13D, typically indicates that an investor is acquiring more than 5% of a company and plans to be an active investor. Downey's stock was recently up $4.56 to $34.55, suggesting that investors would be pleased by a sale of the company.

Based in The Newport Beach, Calif., Downey joined big banks including Citigroup ( C), Washington Mutual ( WM) and National City ( NCC), among others, in taking bit hits tied to the downturn in the housing market as well as this summer's credit crunch.

Downey, which specializes in residential mortgages, reported a net loss of $23.4 million, or 84 cents a share, in the third quarter. That compares to a profit of $55.6 million, or $1.99 a share, for the year-earlier period.

Downey operates 168 branches in California and Arizona.

In the filing, Hilltop said it is "engaged in evaluation of potential candidates for acquisitions or strategic transactions," according to the filing. "As part of this evaluation strategy, the reporting person identified Downey as a potential candidate for an acquisition or strategic transaction."

A Downey spokesman was not immediately available for comment.

The Dallas-based Hilltop, through a subsidiary, operates a property and casualty insurance company that caters to "low-value dwellings" and mobile homes in the southern part of the U.S.

Ford, Hilltop's chairman and a banking industry veteran who used to run Golden State Bancorp before the West Coast thrift was sold back to Citi in 2004, met with Downey Chairman Maurice L. McAlister on Friday, the filing says. He indicated at the meeting that Hilltop had acquired a meaningful position in Downey and is "seeking discussions in the near-term with Downey, either through oral or written communications, regarding its long-term strategies, including a potential business combination," it says.

Ford was head of an investor group that had looked into rescuing troubled subprime lender Fremont General ( FMT). He had agreed in May to make an $80 million investment in Fremont and take control of the retail bank. Last month, Ford scrapped the investment plans.

The Santa Monica, Calif.-based Fremont said in late September that it had been advised by Ford that "in light of certain developments" pertaining to the company and its retail bank, he was "not prepared to consummate the transactions contemplated" by the groups.

Fremont is working with Credit Suisse ( CS) to explore its strategic alternatives.

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