Thornburg Mortgage Inc.: Attack of the Verbs

Today Thornburg Mortgage (TMA) filed reports stating they had met $300 million of margin calls on approximately $3 billion of their mortgage portfolio. The financial news services wasted no time getting out their Thesauri for snappy headlines (via Yahoo Finance):

• Hit - Wall Street Journal - a little lame.
• Thwacked - Forbes - now that’s a little better.
• Mangle - Fortune - better or worse than thwacked?
• Socked - Fortune again - above was the link, this is the headline.
• Tumbles - MarketWatch - friendlier.
• Woes - CNNMoney - not a verb, but always handy.
• Bad to Worse - Barrons - piling on.

Thornburg had to meet margin calls earlier this month on mortgage securities that are performing well, but the market price of the securities had declined. It appears TMA has used up the majority of their ready cash to meet the requirements. If prices do not fall further, they will be OK. If not, securities will have to be sold.

Thornburg has an excellent history of buying and underwriting superior quality mortgages. It is discouraging to see the fear factor in the mortgage market have such a severe effect on a company that has really stayed away from the sub-prime side of the market. Somewhere along the line someone is going to show huge profits from buying distressed, high-quality mortgage securities during these dark days.

Disclosure: I am long TMA.

Comments

[NaturallyCu...:]

BAC is trying to make up their lost $$$$ due to less than profession mgmt practices on TMA's back. Why doesn't TMA mgmt negotiate before paying in full? Trump et al do it all the time! Don't make yourself cash poor before you have to. Mgmt. has a lot of stock in co. as well so it'so their personal benefit to do well.

2008 Mar 02 03:52 PM

[chuk:]

My thought is that paitence will be a virtue I rode down from appx $30 per share and bought more at $10 it will probably take a few more years for their market to get back on track but you may be able to make a 10% return or better over the long haul

2008 Mar 02 09:26 PM

[Mr Mortgage:]

How can you say TMA stayed away from risky mortgages? Do you know how they were underwritten? The max LTV/CLTV for cash out refi's on SFR? The back end DTI for purchases? No, I do not expect any analyst to understand the idiosyncrasies amongst lenders or the subtle differnces between loan programs that make a certain loan Prime, ALT-A or subprime.

What is going on right now is NOT a confused market. It is a market that is actually looking FORWARD, realizing credit was far too easy and defaults will happen. Negative equity, the leading cause of home default among all paper grades, will see to it TMA has a much higher default rate with its INTEREST ONLY, HYBRID ARMS PRIMARILY IN CA AND FL than anyone every thought.

You see the stock market has been stuck looking in the rear view mirror for a year trying to justify a further pump to the equities bubbles and the asset backed market is looking ahead 6-12 months.

Get your blinders off man... the market is the market and has deemed TMA risk. As a matter of fact, below is a summary taken off their 10q of their loans. They are very risky.

QUIT THE PUMP! Well. thats of course unless you work for CNBC and then you get paid for sucking people into bad investments.


FROM THE MOST RECENT 10Q, PAGE 39

(NOTE - both, hybrid intermediate-term ARMs and Pay Option ARMs are classified as ALT-A in most cases. Especially when they are STATED INCOME, which consists of 42.2% of their portfolio.)

-83.5% ($29 billion) of their portfolio in HYBRID INTERMEDIATE-TERM ARMS, primarily 5/1 and 10/1, which allows a low introductory TEASER RATES, mostly interest only for either 5 or 10 years respectively.

-16.5% ($6 billion) in traditional ARMs. Judging by the indices used of 1 month LIBOR, 6 month LIBOR, MTA and 'OTHER ($1.9 Billion), much of this could be PAY OPTION ARMs, which are worthless and currently not selling for any amount of money on the secondary market.

-42.2% of their portfolio are STATED INCOME . Stated income loans have virtually disappeared for anyone that is not self-employed. In the time that TMA acquired their portfolio, stated income was allowed for w-2 employees.

-43.6% are in CA. 7.2% in FL. 50.8% of their loans are in the worst two states in the nation for price depreciation.

-15.3% are Condos. Condo's are considered a risky property type.

-18.5% are second/vacation homes. 11.1% are Non-owner occupied. (both are very risky compared to owner occupied)

-48.1% have an ORIGINAL effective loan-to-value of between 70-80%. Recent studies show that at least 50% of all ARM holders have added a second mortgage over the past 3-years bring their effective CLTV much higher. Factor in a sharp value fall in CA and FL and much of TMA's portfolio is in a NEGATIVE EQUITY situation. A recent Boston Fed study released says 'negative equity is a leading contributor to loan default, even greater than periodic ARM adjustments.'



Sincerely,



Mr. Mortgage

2008 Mar 02 10:02 PM

[helplessobs...:]

Wow, that 10Q stuff is ugly and they only make Jumbo loans. I think I'll pass.

2008 Mar 03 02:24 AM

[jcrash:]

Well, luckily I didn't have much in TMA, but as devil's advocate, a 5/1 or 10/1 arm does not have a TEASER rate...it has a 5 or 10 year fixed rate that is typically slightly below the 30 yr fixed rate available at the time. It in no way is a "teaser" product - and equity does accrue - actually at a higher rate than it would have on a 30yr fixed note. I don't think you have ever bought a house, and if you did, you either paid cash or had no idea what you were doing.

2008 Mar 03 10:44 AM

[Jack Yetiv:]

To Hedge Fund Manipulator:

If you have correctly interpreted the data (which I do not believe to be the case), why is the default rate on TMA's portfolio EVEN CURRENTLY, more than 6 months into the credit crisis, less than 1/2%--to my knowledge, the BEST in the industry?

As to "stated income" mortgage loans--they are pretty much STANDARD for jumbo loans because most buyers of homes worth over $1 million (TMA average loan is about $900K, as I recall) are, in fact, self-employed with high credit scores, and despite this, their historical default rate is far lower than any other group of borrowers.

The credit score (not whether the loan is stated income) is the best predictor of default risk. Jumbo-loan borrowers will default at a much lower rate than Alt-A's and subprimers, and TMA's jumbo borrowers' default rate will be even lower than jumbo0loan borrowers overall.

Disclosure: I just bought 10,000 shares of TMA at $3.81 and have another limit order in for another 10,000 shares. I consider this to be a (moderate-to-high-risk... potential play.

Jack Yetiv

2008 Mar 03 10:52 AM

[Rational:]

You ignore the fact the portfolio only has a delinquency rate under .5%, about 5-8 times less than Fannie Mae's A paper loans.

If someone bought all $26B or so they have left at current market rates and held them all to maturity, you'd make a multi-billion dollar profit.

2008 Mar 03 06:32 PM

[Rick Grant:]

The answer is that this lender sells to a different market. Sure Alt-A loans are risky, doubly so or more when sold to subprime borrowers. But these loans are much less risky when sold to affluent borrowers to finance very high value properties. For evidence, see TMA's delinquency rate.

It's all good and fine for Mr. Mortgage to tell us that no one who isn't inside can really know how the loans are underwritten. But it's really easy to know who they are sold to. Just check the website, an easy first step before engaging in scaring people away from a company that may be among the best in the industry.

2008 Mar 03 09:55 PM

[Frozen Tundra:]

I have to say the "Hedge Fund Manipulator" has posted perhaps the most disingenous crap I have ever seen.

Seeking Alpha should remove this type of junk.

2008 Mar 03 10:52 PM

[fxtrader07:]

@ hedgfundmanipulator: always funny to watch you spreading your "wannabe sophisticated lookin" but in fact plain silly stuff ad nauseum all over the internet .
you write that "What is going on right now is NOT a confused market." Lol, i am watching this market every day very close first hand and you know what: It is not a real market there anymopre! It has almpst completely broken down and that it has, has zuero to do with fine companies like TMA and everything to do with the overpaid incompetenmt crooks who are running the major banks all over the world. The pur billions of other peoples money into instruments they never looked at - not to speak that they ever understood what they were doing. Without UBS and others being forced to sell billions of Alt-A paper into a desert-like dry market, TMA would be very fine.
So don't tell me the markert is forward looking when there is virtually no market at all anymore. If institutions stopped buying stocks tomorrow then every single retail shareholder would face the same problem as TMA now: the price could get cut in half on almost zero volume and swing between 10 and 200% of the stocks' prior price within hours on zero news, on zero change in the company's business. but, i am sure you would still call this chaotic, dysfunctional 'market '"forward looking", right?
Apropos, forward looking: you "predicted" (rather, wished) TMA to go bk within 4 weeks - no, not "weeks ago". You made that call back in October! and here we go, 6 months later and guess what? you make the same call and 6 months from now you will be as wrong as you have been all those months.

2008 Mar 04 04:38 AM

[fxtrader07:]

@Jack Yetiv: I think the preferred shares are the way superior deal here compared to the common, especially the "F"s

2008 Mar 04 04:41 AM

[Mr Mortgage:]

Told ya.

2008 Mar 05 08:18 PM