Tuesday, August 14, 2007

Thornburg's Trouble

by Tanta on 8/14/2007 10:20:00 AM

From Associated Press:

NEW YORK (AP) -- Four analysts downgraded Thornburg Mortgage Inc. on Tuesday, saying the mortgage lender will probably have to sell off some of its loans to stay afloat. . . .

The theme was one familiar to mortgage lenders: Its financial backers are probably asking for their money back, these analysts said. The investment banks that finance mortgage lending typically are entitled to demand repayment when the mortgage loans acting as collateral for the credit lines lose too much value.

This is what has happened in the mortgage industry this year, leading to dozens of bankruptcies. The flare-ups started in "subprime" mortgages, or loans to people with checkered credit histories. Decaying credit quality made subprime loans less valuable, triggering margin calls.

The flight from risky mortgage debt has now spread to loans carrying little actual credit risk. With a $56.4 billion portfolio, Thornburg is the largest mortgage-related security REIT and owns primarily prime loans. But the absence of liquidity for home loans means their market prices have tumbled this year.

Keefe, Bruyette & Woods analyst Bose George expects the company to sell a fifth of its assets to satisfy lenders. The credit markets where Thornburg Mortgage previously raised money are in turmoil, and George said they could take months to recover.

"The company has no opportunity to raise permanent capital to stem the tide," Jefferies analyst Richard Shane Jr. wrote in a client note.
This is ugly. In my view, outfits like AHM and LUM were accidents looking for a place to happen. Thornburg makes those pretty, competitively-priced, conservatively-underwritten jumbo loans whose rate spread over conforming has tripled over the last few months.