Thornburg Mortgage Inc. paints a bleak picture of the current state of the mortgage market and its own ability to continue as a going concern. The jumbo lender has stopped originating new business, faced massive downgrades on its mortgage-backed securities and been hit with ongoing margin calls.
The Santa Fe, N.M.-based company said in a Securities and Exchange filing Tuesday that it earned $407 million in the second quarter, rising from $83 million a year earlier. But the strong numbers were the result of one-time items that reverse charges from the prior quarter.
Thornburg noted in the filing that three escrow release conditions remain before it can have access to $200 million that was part of a recent financing transaction.
“The company believes that the satisfaction of the escrow release conditions is vital for the company to resume normalized business operations,” the filing said. “The uncertainty as to the outcome of these events, the available sources of liquidity and the availability of financing for certain of the company’s ARM assets continue to raise substantial doubt about the company’s ability to continue as a going concern for the foreseeable future.”
In a conference call with investors, Thornburg President Larry Goldstone said the company’s mortgage-backed securities are being downgraded based not only on performance, but also on updates to the ratings processes. However, he indicated the company has already taken steps to account for this.
The “massive number of downgrades” has raised a dispute over required margin calls with its creditors. The real estate investment trust said it has, however, it has reached a compromise with override lenders where it paid $245 million in capital. It still is contending with $26 million in unpaid margin calls.
The company hopes to build capital through the sale of loans during the third quarter.
In its filings, Thornburg said downgrades have impacted $1.7 billion in MBS based on face value from June 30 through Aug. 22.
Warehouse financing is limited and onerous and securitizations have come to a halt. Given current conditions, the company is not originating new loans, Goldstone said.
“The occurrence of recent adverse developments in the mortgage finance and credit markets has adversely affected our business, our liquidity and our stock price and has raised substantial doubt about our ability to continue as a going concern,” the filing stated.
Litigation currently pending against Thornburg includes the following cases:
- In re Thornburg Mortgage Inc. Securities Litigation, a consolidated proceeding encompassing the actions previously reported as Slater v. Thornburg, Gonsalves v. Thornburg, Smith v. Thornburg Mortgage Inc., Sedlmyer v. Thornburg Mortgage Inc., and Snydman v. Thornburg Mortgage Inc.;
- Shareholder Derivative Complaint, Aug. 24, 2007 (First Judicial District Court, Santa Fe County, New Mexico)
Related:
Massive Loss at Thornburg
Thornburg Mortgage Inc. reported a massive quarterly loss and disclosed that it temporarily halted new loan originations recently. Shareholder equity has been wiped out. (June 12)
Anatomy of a Meltdown
Thornburg Mortgage Inc., which has faced insolvency and bankruptcy, detailed a timeline of its demise in a recent securities filing. While a rescue deal has been worked out, the company is still not out of the woods. (May 16)
Thornburg Facing Collapse
Thornburg Mortgage Inc., which today said it will restate financial results for last year, has indicated it may not be able to continue in business. (March 7)
Crisis Deepens at Thornburg
Thornburg Mortgage Inc. has reported that one of its lenders will begin liquidating some of its assets because the company defaulted on a credit line — triggering cross-defaults with other lenders. (March 6)
Liquidity Crisis at Thornburg
Jumbo mortgage lender Thornburg Mortgage Inc. warned today it is facing margin calls that could materially impact its ability to carry on. (March 3)
Alt-A Liquidity Worsens
Thornburg Mortgage Inc. is facing margin calls on its Alt-A investments. (Feb. 28)
