A fund that invests in triple AAA-rated mortgage-backed securities from Fannie Mae and Freddie Mac has seen the value of those securities fall -- likely forcing it to liquidate and casting a shadow over other mortgage firms.
Carlyle Capital Corporation Limited announced yesterday talks have broken down with its lenders as it was hit with $400 million in margin calls over the past seven business days. The margin calls were the result of a decline in the value of its U.S. government agency RMBS holdings.
The Carlyle Group was reportedly prepared to step in with a cash infusion if a refinancing deal could be worked out, but talks broke down when the value of the RMBS fell yesterday -- likely triggering another $97.5 million in margin calls today, the announcement said.
Carlyle, which went public less than a year ago, said it has defaulted on $16.6 billion in debt through yesterday, and it is soon expected to default on the remaining indebtedness.
"It has become apparent to the company that the basis on which lenders are willing to provide financing against the company's collateral has changed so substantially that a successful refinancing is not possible," Wednesday's statement said. "The company expects that its lenders will promptly take possession of substantially all of the company's remaining assets."
Capstead Mortgage Corp., which invests in adjustable-rate RMBS guaranteed by government sponsored enterprises Fannie and Freddie or by government-owned Ginnie Mae, has seen the price of its shares fall recently. Shares of the Dallas-based real estate investment trust have fallen from $18.62 a little over two weeks ago to $10.65 today.
Another REIT that invests in "high quality AA-AAA rated" ARM assets, Thornburg Mortgage Inc., last week warned it may be forced out of business as a result of being overwhelmed with margin calls.
Mortgage Investment Fund Facing Margin Calls
Carlyle Capital Corporation LTD has warned that it is in default on its financing agreements.