<PAGE>

                                                                     EXHIBIT 4.6

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                    CAPITAL SECURITIES GUARANTEE AGREEMENT

                                    Between

                            DOWNEY FINANCIAL CORP.

                                (as Guarantor)

                                      and

                           WILMINGTON TRUST COMPANY
                                 (as Trustee)



                                  dated as of

                              __________ __, 200_


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<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                         Page
<S>                                                                                                      <C>
ARTICLE I      DEFINITIONS.............................................................................     2

     SECTION 1.1    Definitions........................................................................     2

ARTICLE II.    TRUST INDENTURE ACT.....................................................................     4

     SECTION 2.1    Trust Indenture Act; Application...................................................     4

     SECTION 2.2    List of Holders....................................................................     4

     SECTION 2.3    Reports by the Guarantee Trustee...................................................     4

     SECTION 2.4    Periodic Reports to the Guarantee Trustee..........................................     5

     SECTION 2.5    Evidence of Compliance with Conditions Precedent...................................     5

     SECTION 2.6    Events of Default; Waiver..........................................................     5

     SECTION 2.7    Event of Default; Notice...........................................................     5

     SECTION 2.8    Conflicting Interests..............................................................     6

ARTICLE III.   POWERS, DUTIES AND RIGHTS OF THE GUARANTEE
               TRUSTEE.................................................................................     6

     SECTION 3.1    Powers and Duties of the Guarantee Trustee.........................................     6

     SECTION 3.2    Certain Rights of Guarantee Trustee................................................     7

     SECTION 3.3    Indemnity..........................................................................     9

ARTICLE IV.    GUARANTEE TRUSTEE.......................................................................     9

     SECTION 4.1    Guarantee Trustee.  Eligibility....................................................     9

     SECTION 4.2    Appointment, Removal and Resignation of the Guarantee
                    Trustee............................................................................     9

ARTICLE V.     GUARANTEE..............................................................................     10

     SECTION 5.1    Guarantee.........................................................................     10

     SECTION 5.2    Waiver of Notice and Demand.......................................................     10

     SECTION 5.3    Obligations Not Affected..........................................................     10

     SECTION 5.4    Rights of Holders.................................................................     11

     SECTION 5.5    Guarantee of Payment..............................................................     12

     SECTION 5.6    Subrogation.......................................................................     12

     SECTION 5.7    Independent Obligations...........................................................     12

ARTICLE VI.    SUBORDINATION..........................................................................     12
</TABLE>

                                       i
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<TABLE>
<S>                                                                                                 <C>
     SECTION 6.1    Subordination..............................................................     12

     SECTION 6.2    Pari Passu Guarantees......................................................     12

ARTICLE VII.   CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR
               LEASE...........................................................................     13

     SECTION 7.1    Guarantor May Consolidate, Etc., Only on Certain Terms.....................     13

     SECTION 7.2    Successor Guarantor Substituted............................................     13

RRTICLE VIII.  TERMINATION.....................................................................     14

     SECTION 8.1    Termination................................................................     14

ARTICLE IX.    MISCELLANEOUS...................................................................     14

     SECTION 9.1    Successors and Assigns.....................................................     14

     SECTION 9.2    Amendments.................................................................     14

     SECTION 9.3    Notices....................................................................     14

     SECTION 9.4    Benefit....................................................................     15

     SECTION 9.5    Interpretation.............................................................     15

     SECTION 9.6    Governing Law..............................................................     16
</TABLE>

                                      ii
<PAGE>

                            CROSS-REFERENCE TABLE*

<TABLE>
<CAPTION>
             Section of Trust                              Section of
     Indenture Act of 1939, as amended                 Guarantee Agreement
     ---------------------------------                 -------------------
     <S>                                               <C>
                  310(a)                                     4.1(a)
                  310(b)                                   4.1(c), 2.8
                  310(c)                                  Inapplicable
                  311(a)                                     2.2(b)
                  311(b)                                     2.2(b)
                  311(c)                                  Inapplicable
                  312(a)                                     2.2(a)
                  312(b)                                     2.2(b)
                  311(c)                                  Inapplicable
                  312(a)                                     2.2(a)
                  312(b)                                     2.2(b)
                    313                                        2.3
                  314(a)                                       2.4
                  314(b)                                  Inapplicable
                  314(c)                                       2.5
                  314(d)                                  Inapplicable
                  314(e)                                  1.1, 2.5, 3.2
                  314(f)                                    2.1, 3.2
                  315(a)                                     3.1(d)
                  315(b)                                       2.7
                  315(c)                                       3.1
                  315(d)                                     3.1(d)
                  316(a)                                  1.1, 2.6, 5.4
                  316(b)                                       5.3
                  316(c)                                       9.2
                  317(a)                                  Inapplicable
                  317(b)                                  Inapplicable
                  318(a)                                     2.1(b)
                  318(b)                                       2.1
                  318(c)                                     2.1(a)
</TABLE>

_______________________
* This Cross-Reference Table does not constitute part of the Capital Securities
Guarantee and shall not affect the interpretation of any of its terms or
provisions.
<PAGE>

                    CAPITAL SECURITIES GUARANTEE AGREEMENT

     This CAPITAL SECURITIES GUARANTEE AGREEMENT (the "Capital Securities
Guarantee"), dated as of __________ __, 200_, is executed and delivered by
DOWNEY FINANCIAL CORP., a Delaware corporation (the "Guarantor") having its
principal office at 3501 Jamboree Road, North Tower, Newport Beach, California
92660, and WILMINGTON TRUST COMPANY, a Delaware banking corporation, as trustee
(the "Guarantee Trustee"), for the benefit of the Holders (as defined herein)
from time to time of the Capital Securities (as defined herein) of DOWNEY
FINANCIAL CAPITAL TRUST II, a Delaware statutory business trust (the "Trust").

     WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as of
________ __, 200_ (the "Trust Agreement"), among the Guarantor as Depositor,
Wilmington Trust Company as Property Trustee, Wilmington Trust Company as
Delaware Trustee, the Administrative Trustees named therein and the holders from
time to time of undivided beneficial interests in the assets of the Trust, the
Trust is issuing on the date hereof $___________ aggregate Liquidation Amount
(as defined in the Trust Agreement) of its __% Capital Securities, Liquidation
Amount $__ per Capital Security (the "Capital Securities");

     WHEREAS, the Capital Securities will be issued by the Trust and the
proceeds thereof, together with the proceeds from the issuance of the Trust's
Common Securities (as defined below), will be used to purchase the Debentures
(as defined in the Trust Agreement) of the Guarantor which were deposited with
Wilmington Trust Company, as Property Trustee under the Trust Agreement, as
trust assets;

     WHEREAS, as an incentive for the Holders to purchase the Capital
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth herein, to pay to the Holders of the Capital Securities the
Guarantee Payments (as defined herein) and to make certain other payments on the
terms and conditions set forth herein; and

     WHEREAS, the Guarantor is also executing and delivering the Common
Securities Guarantee Agreement, dated as of ________ __, 200_ (the "Common
Securities Guarantee"), for the benefit of holders of the Common Securities (as
defined herein) the terms of which provide that if (i) a Debenture Event of
Default (as defined in the Trust Agreement) shall have occurred and is
continuing or (ii) the Trust is dissolved or liquidated and funds available to
the Trust are insufficient to pay in full the amounts due on the Capital
Securities and the Common Securities or if Debentures are distributed to holders
of the Common Securities and Holders of the Capital Securities upon such
liquidation or dissolution and the Holders of Capital Securities do not receive
the full amount of Debentures to which they are entitled, the rights of holders
of the Common Securities to receive Guarantee Payments under the Common
Securities Guarantee are subordinated, to the extent and in the manner set forth
in the Common Securities Guarantee, to the rights of Holders of Capital
Securities to receive Guarantee Payments under this Capital Securities
Guarantee.

     NOW, THEREFORE, in consideration of the purchase by each Holder of Capital
Securities, which purchase the Guarantor hereby acknowledges shall benefit the
Guarantor, the Guarantor executes and delivers this Capital Securities Guarantee
for the benefit of the Holders.

                                       1
<PAGE>

                            Article I. DEFINITIONS

     SECTION 1.1  Definitions.

     As used in this Capital Securities Guarantee, the terms set forth below
shall, unless the context otherwise requires, have the following meanings.
Capitalized or otherwise defined terms used but not otherwise defined herein
shall have the meanings assigned to such terms in the Trust Agreement and the
Indenture (as defined herein), each as in effect on the date hereof.

     "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.

     "Board of Directors" means either the board of directors of the Guarantor
or any committee of that board duly authorized to act hereunder.

     "Common Securities" means the securities representing common undivided
beneficial interests in the assets of the Trust.

     "Event of Default" means a default by the Guarantor on any of its payment
or other obligations under this Capital Securities Guarantee; provided, however,
that, except with respect to a default in payment of any Guarantee Payments, the
Guarantor shall have received notice of default and shall not have cured such
default within 90 days after receipt of such notice.

     "Guarantee" has the meaning set forth in Section 5.1.

     "Guarantee Payments" means the following payments or distributions, without
duplication, with respect to the Capital Securities, to the extent not paid or
made by or on behalf of the Trust: (i) any accrued and unpaid Distributions (as
defined in the Trust Agreement) that are required to be paid on such Capital
Securities, to the extent the Trust shall have funds legally available therefor
at such time, (ii) the applicable Redemption Price (as defined in the Trust
Agreement), to the extent the Trust shall have funds legally available therefor
at such time, with respect to any Capital Securities called for redemption, and
(iii) upon a voluntary or involuntary termination, winding up or liquidation of
the Trust (other than in connection with the distribution of Debentures to the
Holders in exchange for Capital Securities as provided in the Trust Agreement),
the lesser of (a) the Liquidation Distribution (as defined in the Trust
Agreement) or (b) the amount of assets of the Trust remaining available for
distribution to the Holders after satisfaction of liabilities to creditors of
the Trust as required by applicable law.

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<PAGE>

     "Guarantee Trustee" means Wilmington Trust Company, until a Successor
Guarantee Trustee has been appointed and has accepted such appointment pursuant
to the terms of this Capital Securities Guarantee, and thereafter means each
such Successor Guarantee Trustee.

     "Holder" means any holder, as registered on the books and records of the
Trust, of any Capital Securities; provided, however, that in determining whether
the holders of the requisite percentage of Capital Securities have given any
request, notice, consent or waiver hereunder, "Holder" shall not include the
Guarantor, the Guarantee Trustee, or any Affiliate of the Guarantor or the
Guarantee Trustee.

     "Indenture" means the Junior Subordinated Indenture dated as of July 23,
1999, as supplemented and amended, between the Guarantor and Wilmington Trust
Company, as trustee.

     "List of Holders" has the meaning specified in Section 2.2(a).

     "Majority in Liquidation Amount of the Capital Securities" means, except as
provided by the Trust Indenture Act, a vote by the Holder(s), voting separately
as a class, of more than 50% of the Liquidation Amount of all then outstanding
Capital Securities issued by the Trust.

     "Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chairman or a Vice Chairman of the Board of Directors of such
Person or the President or a Vice President of such Person, and by the Chief
Financial Officer, the Secretary or an Assistant Secretary of such Person, and
delivered to the Guarantee Trustee. Any Officers' Certificate delivered with
respect to compliance with a condition or covenant provided for in this Capital
Securities Guarantee shall include:

     (a)  a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;

     (b)  a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;

     (c)  a statement that each officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and

     (d)  a statement as to whether, in the opinion of each officer, such
condition or covenant has been complied with.

     "Other Guarantees" means any guarantees similar to the Guarantee issued,
from time to time, by the Guarantor on behalf of holders of one or more series
of capital securities issued by any Downey Trust (as defined in the Indenture)
other than the Trust.

     "Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated

                                       3
<PAGE>

association, or government or any agency or political subdivision thereof, or
any other entity of whatever nature.

     "Responsible Officer" means, with respect to the Guarantee Trustee, any
officer of the Corporate Trust Department of the Guarantee Trustee with direct
responsibility for the administration of this Guarantee and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.

     "Securities Act" means the Securities Act of 1933, as amended.

     "Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.

     "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.

                        Article II. TRUST INDENTURE ACT

     SECTION 2.1  Trust Indenture Act; Application.

     (a)  This Capital Securities Guarantee is subject to the provisions of the
Trust Indenture Act that are required to be part of this Capital Securities
Guarantee and shall, to the extent applicable, be governed by such provisions.

     (b)  If and to the extent that any provision of this Capital Securities
Guarantee limits, qualifies or conflicts with the duties imposed by Sections 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.

     SECTION 2.2  List of Holders.

     (a)  The Guarantor shall furnish or cause to be furnished to the Guarantee
Trustee (a) semiannually, on or before January 15 and July 15 of each year, a
list, in such form as the Guarantee Trustee may reasonably require, of the names
and addresses of the Holders ("List of Holders") as of a date not more than 15
days prior to the delivery thereof, and (b) at such other times as the Guarantee
Trustee may request in writing, within 30 days after the receipt by the
Guarantor of any such request, a List of Holders as of a date not more than 15
days prior to the time such list is furnished, in each case to the extent such
information is in the possession or control of the Guarantor and is not
identical to a previously supplied list of Holders or has not otherwise been
received by the Guarantee Trustee in its capacity as such; provided, however
that the Guarantor is not required to furnish a List of Holders to the Guarantee
Trustee for so long as the Guarantee Trustee is the Securities Registrar for the
Capital Securities. The Guarantee Trustee may destroy any List of Holders
previously given to it on receipt of a new List of Holders.

     (b)  The Guarantee Trustee shall comply with its obligations under Section
311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act.

                                       4
<PAGE>

     SECTION 2.3  Reports by the Guarantee Trustee.

     Not later than July 31 of each year, commencing on the year beginning
January 1, 200_, the Guarantee Trustee shall provide to the Holders such reports
as are required by Section 313 of the Trust Indenture Act, if any, in the form
and in the manner provided by Section 313 of the Trust Indenture Act. The
Guarantee Trustee shall also comply with the requirements of Section 313(d) of
the Trust Indenture Act.

     SECTION 2.4  Periodic Reports to the Guarantee Trustee.

     The Guarantor shall provide to the Guarantee Trustee, the Securities and
Exchange Commission and the Holders such documents, reports and information, if
any, as required by Section 314 of the Trust Indenture Act and the compliance
certificate required by Section 314 of the Trust Indenture Act, in the form, in
the manner and at the times required by Section 314 of the Trust Indenture Act.

     SECTION 2.5  Evidence of Compliance with Conditions Precedent.

     The Guarantor shall provide to the Guarantee Trustee, on an annual basis,
such evidence of compliance with such conditions precedent, if any, provided for
in this Capital Securities Guarantee that relate to any of the matters set forth
in Section 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c)(1) may be given in
the form of an Officers' Certificate.

     SECTION 2.6  Events of Default; Waiver.

     The Holders of a Majority in Liquidation Amount of the Capital Securities
may, by vote, on behalf of the Holders, waive any past Event of Default and its
consequences. Upon such waiver, any such Event of Default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been cured,
for every purpose of this Capital Securities Guarantee, but no such waiver shall
extend to any subsequent or other default or Event of Default or impair any
right consequent therefrom.

     SECTION 2.7  Event of Default; Notice.

     (a)  The Guarantee Trustee shall, within 90 days after the occurrence of a
default which with notice or the passage of time, or both, could become an Event
of Default, transmit by mail, first class postage prepaid, to the Holders,
notices of all such defaults known to the Guarantee Trustee, unless such
defaults have been cured before the giving of such notice, provided, that,
except in the case of a default in the payment of a Guarantee Payment, the
Guarantee Trustee shall be protected in withholding such notice if and so long
as the Board of Directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Guarantee Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders.

                                       5
<PAGE>

     (b)  The Guarantee Trustee shall not be deemed to have knowledge of any
such default unless the Guarantee Trustee shall have received written notice, or
a Responsible Officer charged with the administration of this Capital Securities
Guarantee shall have obtained written notice, of such default.

     SECTION 2.8  Conflicting Interests.

     The Trust Agreement shall be deemed to be specifically described in this
Capital Securities Guarantee for the purposes of clause (i) of the first proviso
contained in Section 310(b) of the Trust Indenture Act.

                    ARTICLE III. POWERS, DUTIES AND RIGHTS
                           OF THE GUARANTEE TRUSTEE

     SECTION 3.1  Powers and Duties of the Guarantee Trustee.

     (a)  This Guarantee shall be held by the Guarantee Trustee for the benefit
of the Holders, and the Guarantee Trustee shall not transfer this Guarantee to
any Person except to a Holder exercising his or her rights pursuant to Section
5.4(iv) or to a Successor Guarantee Trustee on acceptance by such Successor
Guarantee Trustee of its appointment to act as Successor Guarantee Trustee. The
right, title and interest of the Guarantee Trustee shall automatically vest in
any Successor Guarantee Trustee, upon acceptance by such Successor Guarantee
Trustee of its appointment hereunder, and such vesting and cessation of title
shall be effective whether or not conveyancing documents have been executed and
delivered pursuant to the appointment of such Successor Guarantee Trustee.

     (b)  If an Event of Default has occurred and is continuing, the Guarantee
Trustee shall enforce this Guarantee for the benefit of the Holders.

     (c)  The Guarantee Trustee, before the occurrence of any Event of Default
and after the curing of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Capital Securities Guarantee, and no implied covenants shall be read into this
Capital Securities Guarantee against the Guarantee Trustee. In case an Event of
Default has occurred (that has not been cured or waived pursuant to Section
2.6), the Guarantee Trustee shall exercise such of the rights and powers vested
in it by this Capital Securities Guarantee, and use the same degree of care and
skill in its exercise thereof, as a prudent person would exercise or use under
the circumstances in the conduct of his or her own affairs.

     (d)  No provision of this Capital Securities Guarantee shall be construed
to relieve the Guarantee Trustee from liability for its own negligent action,
its own negligent failure to act or its own willful misconduct, except that:

          (i)  prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:

                                       6
<PAGE>

                  (A)  the duties and obligations of the Guarantee Trustee shall
be determined solely by the express provisions of this Capital Securities
Guarantee, and the Guarantee Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set forth in this
Capital Securities Guarantee; and

                  (B)  in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Guarantee Trustee and conforming to
the requirements of this Capital Securities Guarantee; but in the case of any
such certificates or opinions that by any provision hereof or of the Trust
Indenture Act are specifically required to be furnished to the Guarantee
Trustee, the Guarantee Trustee shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this Capital
Securities Guarantee;

          (ii)    The Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee Trustee,
unless it shall be proved that the Guarantee Trustee was negligent in
ascertaining the pertinent facts upon which such judgment was made;

          (iii)   the Guarantee Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of not less than a Majority in Liquidation Amount of
the Capital Securities relating to the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee, or exercising any
trust or power conferred upon the Guarantee Trustee under this Capital
Securities Guarantee; and

          (iv)    no provision of this Capital Securities Guarantee shall
require the Guarantee Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if the Guarantee Trustee shall have
reasonable grounds for believing that the repayment of such funds or liability
is not reasonably assured to it under the terms of this Capital Securities
Guarantee or adequate indemnity against such risk or liability is not reasonably
assured to it.

     SECTION 3.2  Certain Rights of Guarantee Trustee.

     (a)  Subject to the provisions of Section 3.1:

          (i)     The Guarantee Trustee may rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
reasonably believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.

                                       7
<PAGE>

          (ii)    Any direction or act of the Guarantor contemplated by this
Capital Securities Guarantee shall be sufficiently evidenced by an Officers'
Certificate unless otherwise prescribed herein.

          (iii)   Whenever, in the administration of this Capital Securities
Guarantee, the Guarantee Trustee shall deem it desirable that a matter be proved
or established before taking, suffering or omitting to take any action
hereunder, the Guarantee Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request and rely upon
an Officers' Certificate which, upon receipt of such request from the Guarantee
Trustee, shall be promptly delivered by the Guarantor.

          (iv)    The Guarantee Trustee may consult with legal counsel, and the
written advice or opinion of such legal counsel with respect to legal matters
shall be full and complete authorization and protection in respect of any action
taken, suffered or omitted to be taken by it hereunder in good faith and in
accordance with such advice or opinion. Such legal counsel may be legal counsel
to the Guarantor or any of its Affiliates and may be one of its employees. The
Guarantee Trustee shall have the right at any time to seek instructions
concerning the administration of this Capital Securities Guarantee from any
court of competent jurisdiction.

          (v)     The Guarantee Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Capital Securities Guarantee at
the request or direction of any Holder, unless such Holder shall have provided
to the Guarantee Trustee such adequate security and indemnity as would satisfy a
reasonable person in the position of the Guarantee Trustee, against the costs,
expenses (including attorneys' fees and expenses) and liabilities that might be
incurred by it in complying with such request or direction, including such
reasonable advances as may be requested by the Guarantee Trustee; provided that,
nothing contained in this Section 3.2(a)(v) shall be taken to relieve the
Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation
to exercise the rights and powers vested in it by this Capital Securities
Guarantee.

          (vi)    The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Guarantee Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit.

          (vii)   The Guarantee Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through its
agents or attorneys, and the Guarantee Trustee shall not be responsible for any
misconduct or negligence on the part of any such agent or attorney appointed
with due care by it hereunder.

          (viii)  Whenever in the administration of this Capital Securities
Guarantee the Guarantee Trustee shall deem it desirable to receive instructions
with respect to enforcing any remedy or right or taking any other action
hereunder, the Guarantee Trustee (A) may request instructions from the Holders,
(B) may refrain from enforcing such remedy or right or taking such

                                       8
<PAGE>

other action until such instructions are received, and (C) shall be protected in
acting in accordance with such instructions.

     (b)  No provision of this Capital Securities Guarantee shall be deemed to
impose any duty or obligation on the Guarantee Trustee to perform any act or
acts or exercise any right, power, duty or obligation conferred or imposed on it
in any jurisdiction in which it shall be illegal, or in which the Guarantee
Trustee shall be unqualified or incompetent in accordance with applicable law,
to perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee Trustee
shall be construed to be a duty to act in accordance with such power and
authority.

     SECTION 3.3  Indemnity.

     The Guarantor agrees to pay to the Guarantee Trustee from time to time, and
the Guarantee Trustee shall be entitled to, reasonable compensation, and, except
as otherwise expressly provided, the Guarantor will pay or reimburse the
Guarantee Trustee upon its request for all reasonable expenses, disbursements
and advances incurred or made by the Guarantee Trustee in accordance with any of
the provisions of this Capital Securities Guarantee (including the reasonable
compensation and the expenses and disbursements of its counsel and of all other
persons not regularly in its employ) except any such expense, disbursement or
advance as may arise from its negligence or bad faith. The Guarantor agrees to
indemnify the Guarantee Trustee for, and to hold it harmless against, any loss,
liability or expense incurred without negligence or bad faith on the part of the
Guarantee Trustee, arising out of or in connection with the acceptance or
administration of this Capital Securities Guarantee, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder.

     When the Guarantee Trustee incurs expenses or renders services after an
Event of Default, the expenses and compensation for the services are intended to
constitute expenses of administration under any bankruptcy law.

     The provisions of this Section shall survive the termination of this
Capital Securities Guarantee.

                         ARTICLE IV. GUARANTEE TRUSTEE

     SECTION 4.1  Guarantee Trustee.  Eligibility.

     (a)  There shall at all times be a Guarantee Trustee which shall:

          (i)  not be an Affiliate of the Guarantor; and

          (ii) be a Person that is eligible pursuant to the Trust Indenture Act
to act as such and has a combined capital and surplus of at least $50,000,000,
and shall be a corporation meeting the requirements of Section 310(a) of the
Trust Indenture Act. If such corporation publishes reports

                                       9
<PAGE>

of condition at least annually, pursuant to law or to the requirements of the
supervising or examining authority, then, for the purposes of this Section
4.1(a)(ii) and to the extent permitted by the Trust Indenture Act, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published.

     (b)  If at any time the Guarantee Trustee shall cease to be eligible to so
act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the
manner and with the effect set out in Section 4.2(c).

     (c)  If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the provisions
of Section 310(b) of the Trust Indenture Act.

     SECTION 4.2  Appointment, Removal and Resignation of the Guarantee Trustee.

     (a)  Subject to Section 4.2(b), the Guarantee Trustee may be appointed or
removed without cause at any time by the Guarantor.

     (b)  The Guarantee Trustee shall not be removed until a Successor Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Guarantee Trustee and delivered to the
Guarantor.

     (c)  The Guarantee Trustee appointed hereunder shall hold office until a
Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.

     (d)  If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition, at the expense of the Guarantor, any court of
competent jurisdiction for appointment of a Successor Guarantee Trustee. Such
court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Guarantee Trustee.

                             ARTICLE V. GUARANTEE

     SECTION 5.1  Guarantee.

     The Guarantor irrevocably and unconditionally agrees to pay in full on a
subordinated basis to the Holders the Guarantee Payments (without duplication of
amounts theretofore paid by or on behalf of the Trust), as and when due,
regardless of any defense, right of set-off or counterclaim which the Trust may
have or assert other than the defense of payment (the "Guarantee"). The

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Guarantee is a continuing guarantee, and the Guarantor fully, knowingly and
unconditionally waives any right the Guarantor may have to revoke the Guarantee
as to any future transactions. The Guarantor's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Guarantor to the Holders or by causing the Trust to pay such amounts to the
Holders.

     SECTION 5.2  Waiver of Notice and Demand.

     The Guarantor hereby waives notice of acceptance of this Capital Securities
Guarantee and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the
Guarantee Trustee, Trust or any other Person before proceeding against the
Guarantor, protest, notice of nonpayment, notice of dishonor, notice of
redemption and all other notices and demands.

     SECTION 5.3  Obligations Not Affected.

     The obligations, covenants, agreements and duties of the Guarantor under
this Capital Securities Guarantee shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:

     (a)  the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Capital Securities to be performed
or observed by the Trust;

     (b)  the extension of time for the payment by the Trust of all or any
portion of the Distributions (other than an extension of time for payment of
Distributions that results from the extension of any interest payment period on
the Debentures as provided in the Indenture), Redemption Price, Liquidation
Distribution or any other sums payable under the terms of the Capital Securities
or the extension of time for the performance of any other obligation under,
arising out of, or in connection with, the Capital Securities;

     (c)  any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Capital Securities, or any
action on the part of the Trust granting indulgence or extension of any kind;

     (d)  the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust;

     (e)  any invalidity of, or defect or deficiency in, the Capital Securities;

     (f)  the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or

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     (g)  any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor;

it being the intent of this Section 5.3 that the obligations of the Guarantor
hereunder shall be absolute and unconditional under any and all circumstances.

There shall be no obligation of the Holders to give notice to, or obtain the
consent of, the Guarantor with respect to the happening of any of the foregoing.

     SECTION 5.4  Rights of Holders.

     The Guarantor expressly acknowledges that: (i) this Capital Securities
Guarantee will be deposited with the Guarantee Trustee to be held for the
benefit of the Holders; (ii) the Guarantee Trustee has the right to enforce this
Guarantee on behalf of the Holders; (iii) the Holders of a Majority in
Liquidation Amount of the Capital Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of this Capital Securities Guarantee or exercising
any trust or power conferred upon the Guarantee Trustee under this Capital
Securities Guarantee; and (iv) notwithstanding the rights of the Guarantee
Trustee to enforce this Capital Securities Guarantee under Article III, any
Holder may institute a legal proceeding directly against the Guarantor to
enforce its rights under this Capital Securities Guarantee, without first
instituting a legal proceeding against the Guarantee Trustee, the Trust or any
other Person; notwithstanding the foregoing, if the Guarantor has failed to make
a Guarantee Payment, a Holder may directly institute a proceeding against the
Guarantor for enforcement of this Capital Securities Guarantee for such payment
and the Guarantor waives any right or remedy to require that any action be
brought first against the Trust or any other Person or entity before proceeding
directly against the Guarantor.

     SECTION 5.5  Guarantee of Payment.

     This Capital Securities Guarantee creates a guarantee of payment and not of
collection. This Guarantee will not be discharged except by payment of the
Guarantee Payments in full (without duplication of amounts theretofore paid by
the Trust) or upon distribution of Debentures to Holders as provided in the
Trust Agreement.

     SECTION 5.6  Subrogation.

     The Guarantor shall be subrogated to all (if any) rights of the Holders
against the Trust in respect of any amounts paid to the Holders by the Guarantor
under this Capital Securities Guarantee and shall have the right to waive
payment by the Trust pursuant to Section 5.1; provided, however, that the
Guarantor shall not (except to the extent required by mandatory provisions of
law) be entitled to enforce or exercise any rights which it may acquire by way
of subrogation or any indemnity, reimbursement or other agreement, in all cases
as a result of payment under this Capital Securities Guarantee, if, at the time
of any such payment, any amounts are due and unpaid under this Capital
Securities Guarantee. If any amount shall be paid to the Guarantor in violation
of the
<PAGE>

preceding sentence, the Guarantor agrees to hold such amount in trust for the
Holders and to pay over such amount to the Holders.

     SECTION 5.7  Independent Obligations.

     The Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Trust with respect to the Capital Securities and that
the Guarantor shall be liable as principal and as debtor hereunder to make
Guarantee Payments pursuant to the terms of this Capital Securities Guarantee
notwithstanding the occurrence of any event referred to in subsections (a)
through (g), inclusive, of Section 5.3 hereof.

                           ARTICLE VI. SUBORDINATION

     SECTION 6.1  Subordination.

     The obligations of the Guarantor under this Guarantee will constitute
unsecured obligations of the Guarantor and will rank subordinate and junior in
right of payment to all Senior and Subordinated Debt in the same manner as the
Debentures.

     SECTION 6.2  Pari Passu Guarantees.

     The obligations of the Guarantor under this Guarantee shall rank pari passu
with the obligations of the Guarantor under all Other Guarantees.

                ARTICLE VII. CONSOLIDATION, MERGER, CONVEYANCE,
                               TRANSFER OR LEASE

     SECTION 7.1  Guarantor May Consolidate, Etc., Only on Certain Terms.

     The Guarantor shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to any Person, and no Person shall consolidate with
or merge into the Guarantor or convey, transfer or lease its properties and
assets as an entirety or substantially as an entirety to the Guarantor, unless:

     (a)  either the Guarantor shall be the continuing Person, in the case of a
merger, or the successor Person (if other than the Guarantor) formed by the
consolidation or into which the Guarantor is merged or which acquires by
conveyance, transfer or lease, the properties and assets of the Guarantor as an
entirety or substantially as an entirety is organized under the laws of the
United States or any state of the United States or the District of Columbia, and
the successor Person expressly assumes the Guarantor's obligations under this
Capital Securities Guarantee and the due and punctual performance and observance
of every obligation in this Capital Securities Guarantee;

     (b)  immediately after giving effect thereto, no Event of Default, and no
event which, after notice or lapse of time, or both, would become an Event of
Default, shall have happened and be continuing;

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<PAGE>

     (c)  such consolidation, merger, conveyance, transfer or lease is permitted
under the Trust Agreement and the Indenture and does not give rise to any breach
or violation of the Trust Agreement or the Indenture; and

     (d)  the Guarantor has delivered to the Guarantee Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and assumption of the Guarantor's
obligations under this Capital Securities Guarantee comply with this Article and
that all conditions precedent herein provided for relating to such transaction
have been complied with; and the Guarantee Trustee, subject to Section 3.1
hereof, may rely upon such Officers' Certificate and Opinion of Counsel as
conclusive evidence that such transaction complies with this Section 7.1.

     SECTION 7.2  Successor Guarantor Substituted.

     Upon any consolidation or merger by the Guarantor with or into any other
Person, or any conveyance, transfer or lease by the Guarantor of its properties
and assets substantially as an entirety to any Person in accordance with Section
7.1, the successor Person formed by such consolidation or into which the
Guarantor is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Guarantor under this Capital Securities Guarantee with the same effect as if
such successor Person had been named as the Guarantor herein; and in the event
of any such conveyance, transfer or lease the Guarantor shall be discharged from
all obligations and covenants under this Capital Securities Guarantee.

                           ARTICLE VIII. TERMINATION

     SECTION 8.1  Termination.

     This Capital Securities Guarantee shall terminate and be of no further
force or effect upon the (i) full payment of the applicable Redemption Price of
all Capital Securities, (ii) the distribution of Debentures to the Holders in
exchange for all of the Capital Securities or (iii) full payment of the amounts
payable in accordance with the Trust Agreement upon liquidation or dissolution
of the Trust. Notwithstanding the foregoing, this Capital Securities Guarantee
will continue to be effective or will be reinstated, as the case may be, if at
any time any Holder must restore payment of any sums paid with respect to the
Capital Securities or under this Capital Securities Guarantee.

                           ARTICLE IX. MISCELLANEOUS

     SECTION 9.1  Successors and Assigns.

     All guarantees and agreements contained in this Capital Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Capital Securities then outstanding. Except in connection with a
consolidation, merger or sale involving the Guarantor that is permitted under
Article VII hereof and Article VIII of the Indenture, the Guarantor shall not
assign its obligations hereunder.

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<PAGE>

     SECTION 9.2  Amendments.

     Except with respect to any changes which do not adversely affect the rights
of the Holders in any material respect (in which case no consent of the Holders
will be required), this Capital Securities Guarantee may not be amended without
the prior approval of the Holders of not less than a Majority in Liquidation
Amount of all outstanding Capital Securities. The provisions of Article VI of
the Trust Agreement concerning meetings of the Holders of the Trust Securities
shall apply to the giving of such approval.

     SECTION 9.3  Notices.

     Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied or mailed by first class mail as follows:

     (a)  if given to the Guarantor, to the address set forth below or such
other address, facsimile number or to the attention of such other Person as the
Guarantor may give notice to the Holders:

          Downey Financial Corp.
          3501 Jamboree Road, North Tower
          Newport Beach, California 92660

          Facsimile No.: (949) 725-0619
          Attention: Donald E. Royer

     (b)  if given to the Trust, in care of the Guarantee Trustee, at the
Trust's (and the Guarantee Trustee's) address set forth below or such other
address as the Guarantee Trustee on behalf of the Trust may give notice to the
Holders:

          Downey Financial Capital Trust III
          c/o Downey Financial Corp.
          3501 Jamboree Road, North Tower
          Newport Beach, California 92660

          Facsimile No.: (949) 725-0619
          Attention: Donald E. Royer

          with a copy to:

          Wilmington Trust Company
          Rodney Square North
          1100 North Market Street
          Wilmington, Delaware 19890-0001

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<PAGE>

          Facsimile No.: (302) 651-8882
          Attention: Corporate Trust Administration

     (c)  if given to any Holder, at the address set forth on the books and
records of the Trust.

     All notices hereunder shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.

     SECTION 9.4  Benefit.

     This Guarantee is solely for the benefit of the Holders and subject to
Section 3.1(a) is not separately transferable from the Capital Securities.

     SECTION 9.5  Interpretation.

     In this Capital Securities Guarantee, unless the context otherwise
requires:

     (a)  capitalized terms used in this Capital Securities Guarantee but not
defined in the preamble hereto have the respective meanings assigned to them in
Section 1.1;

     (b)  a term defined anywhere in this Capital Securities Guarantee has the
same meaning throughout;

     (c)  all references to "the Capital Securities Guarantee" or "this Capital
Securities Guarantee" are to this Capital Securities Guarantee as modified,
supplemented or amended from time to time;

     (d)  all references in this Capital Securities Guarantee to Articles and
Sections are to Articles and Sections of this Capital Securities Guarantee
unless otherwise specified;

     (e)  a term defined in the Trust Indenture Act has the same meaning when
used in this Capital Securities Guarantee unless otherwise defined in this
Capital Securities Guarantee or unless the context otherwise requires;

     (f)  a reference to the singular includes the plural and vice versa; and

     (g)  the masculine, feminine or neuter genders used herein shall include
the masculine, feminine and neuter genders.

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     SECTION 9.6  Governing Law.

     THIS CAPITAL SECURITIES GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE CONFLICT OF LAW PRINCIPLES THEREOF.

     This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.

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     THIS CAPITAL SECURITIES GUARANTEE is executed as of the day and year first
above written.

                                        Downey Financial Corp.



                                        By:____________________________________
                                           Daniel D. Rosenthal
                                           President & Chief Executive Officer




                                        Wilmington Trust Company
                                        as Guarantee Trustee



                                        By:____________________________________
                                        Name:
                                        Title: Financial Services Officer

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