Thornburg is in trouble again but who cares about Thornburg. This is not about Thornburg. It is about the banks,
Somehow everyone became fixated with the cool sounding ‘CDO’ and forgot all about the whole loan and MBS exposure still on bank’s balance sheets, much of it ‘at-risk’ but not labeled or valued as such.
Not everything was ‘sold and securitized’. Far from it. Higher yielding paper such as higher rated Alt-A including Pay Option ARMs and HELOC’s were among the favorites for some. Other’s who were trying to be more responsible thought that holding onto Jumbo Prime for investment was a great game plan. In retrospect, it was a bad plan but in many cases, especially with higher-rated Jumbo Prime, it seemed ‘safe’ at the time.
When values are off 35% in 14 months in the largest Jumbo state int he nation, everything is beginning to look like SubPrime. As a matter of fact, the raters hit the Jumbo Prime and Alt-A universe’s hard a couple of weeks back with a ratings chop-chop that looked identical to the flurry of subprime downgrades prior to the Aug/Sept credit market combustion. I wrote about it on August 12th.
S&P hammered ‘Jumbo Prime’ RMBS backed by loans made in the first half of 2007 today. Much of this was a final decision from their May 22nd placment of these RMBS to ‘CreditWatch Negative’.
The RMBS involved in this first of many sweeps are from: Bank of America, Chase, CHL, Citi, Credit Suisse, First Horizon, HSI, Merrill, RFMSI, Sequoia and WaMu.
Why in the world did it take two and a half months to finalize the downgrades? Perhaps they were waiting for the stock market to stabilize. Their typical time frame would have brought these out in early to mid-June the markets were in free fall led by the financials. Don’t ya think the time for games has come and gone guys?
Although these downgrades are nowhere near as large as the Alt-A and Jumbo Prime slaughter from Moody’s, Fitch and S&P over the past couple of weeks, they touch upon the sacred ‘Jumbo Prime’ universe thought to be immune to the nations real estate and mortgage woes.
Thornburg is simply the after-effect of this. A very quick one at that. Repo lenders are not messing around any longer. Those still in business relying on lines and leverage to own mortgage paper and skim a little off the top are in over their heads this time around.
In my opinion this is the first sign of things that are headed towards the nation’s largest banks holding the most whole loans and MBS’. The Jumbo Prime and Alt-A exposure on many of the nation’s leading bank’s books is significant. Much of this is still marked at face or a very liberal model based upon a ‘Prime’ paper grade or ‘Investment Grade’ credit rating.
Thornburg getting a margin call can be viewed as equivalent to a bank taking a write-down on similar paper. The fish has swam upstream to higher grade mortgage loans. The negative-equity effect is alive and well across all borrower types.
And remember, most of Thornburg’s Jumbo Prime is of much higher quality that what Wells Fargo, CITI, Chase, WaMu, SunTrust, First Horizon or Lehman were originating during the bubble years. -Best Mr Mortgage
“Our circumstances are somewhat precarious, to put it mildly,” CEO Larry Goldstone said. “Whoever thinks [mortgage securitization] is being fixed or getting better out there, it’s not.”
“Troubled ultra-jumbo lender Thornburg Mortgage Inc. (TMA: 0.49 +22.50%) said Tuesday morning that net income for the second quarter was at $412.3 million — but that was before $209.6 million in MBS impairment charges, and a fair value gain tied to accounting for some liabilities, which helped push adjusted net income to just $22.7 million. (On the bright side: net income was still positive.)
Those MBS woes looked likely to continue into the third quarter, as well — with Thornburg saying in a filing with the Securities and Exchange Commission that an additional $1.1 billion in carrying value of MBS was downgraded by rating agencies between June 30 and August 22; those downgrades affected collateral securing various reverse repurchase agreements, the company said. Those downgrades have led to $219 million in margin calls, which Thornburg said it had so far met; it’s expecting another $25.9 million in margin calls, as well, based on collateral downgrades.”
The company’s execs were blunt with investors and analysts on the earnings conference call.