UPDATE 1-FirstFed Financial posts wider-than-expected Q3 loss

* Q3 loss wider than expected

* Loan loss provision up about 25-fold

Oct 31 (Reuters) - Savings and loan FirstFed Financial Corp FED.N posted a wider-than-expected loss for the third quarter, hurt mainly by an almost 25-fold jump in bad loan provision.

"The loan loss provision was due to ongoing charge-offs and modifications of single family loans as well as the continuing weakness in the California real estate market," the company said in a statement.

Lenders like FirstFed and Downey Financial Corp DSL.N specialize in originating pay-option adjustable rate loans or option ARMs, which give borrowers several payment choices each month, including paying less than the interest due.

Many borrowers are defaulting on these loans, often finding themselves owing more than their homes are worth.

FirstFed posted a net loss of $51.6 million for the third quarter, compared with a net income of $23.0 million a year ago.

The parent company of First Federal Bank of California said net loan charge-offs was $103.4 million for the quarter, compared with $3.2 million a year ago.

Net interest income fell 26 percent to $45.8 million in the quarter due to lower interest-earning assets, increased non-accrual loans and lower interest rate spreads.

Shares of Santa Monica, California-based FirstFed closed at $8.21 Thursday on the New York Stock Exchange.

For the alerts, please click [ID:nWNAB5930] . For the press release, please click [ID:nBw315178a] . (Reporting by Anurag Kotoky in Bangalore; Editing by Himani Sarkar)