Housing Market Tracker - Will Thornburg Sink or Swim?

Subprime Fallout

Thornburg, a Mortgage Lender, Misses Margin Calls. "Mortgage lender Thornburg Mortgage (TMA) said it had faced $270 million of margin calls since last Wednesday, on top of more than $300M in the previous two weeks. It said it... could not meet a “substantial majority” of the new calls because of “limited available liquidity.” Margin calls force borrowers to pay back loans or post more collateral. Thornburg said that it was trying to sell securities, offer debt or raise capital to bolster liquidity. It also said that its failure to meet a $28M call caused one lender to declare a default, and that more failures could materially hurt its ability to operate normally." (NY Times, Mar. 4th)

Don't Throw Thornburg Mortgage into the Briarpatch Yet. "Thornburg Mortgages' attractive dividend will [likely] be suspended in the next few days. [But] a bet that the company's well-respected back-office and... mortgage industry position will attract the necessary capital to clear the current margin call hurdle may not be ill-advised... Legg Mason Capital Management disclosed a 9.08% ownership in Thornburg (as of January) along with... investor Richard Rainwater of Bass Brothers fame reporting a 5.5% position. It would not be altogether surprising if either of these institutional holders participated in the raising of that capital... Just like E-Trade Financial (ETFC) found... Citadel Investment last summer when they needed to protect their initial investment." (David Greene in Seeking Alpha, Mar. 4th)

Citigroup May Need Cash as Losses Mount, Dubai Says. "Citigroup Inc. (C), the biggest U.S. bank, may need additional capital from outside investors as losses stemming from the collapse of the U.S. subprime mortgage market increase, the head of Dubai International Capital LLC said. Citigroup received $7.5 billion in November from Dubai's neighbor, Abu Dhabi, after record mortgage losses wiped out almost half the company's market value." (Bloomberg, Mar. 4th)

Radian Group Says Unable To File Annual Report On Time. "Mortgage insurer Radian Group (RDN) said it was unable to file its annual report on time as it could not finalize its fair value estimate of insured collateralized debt obligations transactions in its financial guaranty business. In a regulatory filing, the company said material weakness in its internal control over financial reporting continued to exist as of Dec. 31, 2007." (Reuters, Mar. 3rd)

MGIC Files for Stock Offering. "MGIC Investment Corp. (MTG) filed Monday to sell common shares of the company's stock. MGIC did not specify the amount of stock it intends to sell or the price for the stock... MTG SEC filing: "We intend to use the net proceeds from this offering to increase the capital of MGIC in order to enable it to expand the volume of its new business and for our general corporate purposes." Stock analysts who follow MGIC have estimated the company needs to raise between $250 million and $1 billion to bolster its balance sheet after the company reported a Q4 net loss of $1.47B, or $18.17/share." (Milwaukee Business Journal, Mar. 3rd)

Thornburg Mortgage Inc.: Attack of the Verbs. "Thornburg used up the majority of their ready cash to meet... margin calls earlier this month on mortgage securities that are performing well, but the market price of the securities had declined... If prices do not fall further, they will be OK. If not, securities will have to be sold... 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... Someone is going to show huge profits from buying distressed, high-quality mortgage securities during these dark days." (Tim Plaehn in Seeking Alpha, Mar. 2nd)

Defaults on insured U.S. mortgages climb 31%. "Mortgage Insurance Companies of America report: Defaults on privately insured U.S. mortgages rose 31% in January from January 2007, the 13th straight month showing an annual increase... Insured borrowers falling more than 60 days behind on payments rose to 68,950 last month from 52,528 a year earlier. Defaults last fell in December 2006... The total amount of insured mortgages also increased in January to more than $832 billion, rising about 24% from January 2007... The M.I.C.A. data understate the total number of defaults as they are drawn from six of the seven biggest U.S. mortgage insurers, excluding nonmember Radian." (Detroit Free Press, Mar. 1st)

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Comments

[Yael Pipano:]

Judy- The fear factor of the market these days is the psychological component of pricing and we see its power in TMA's valuation. Whether the company survives this perfect storm or not is now purely dependent on forces outside the company's management. How true and absolutely surreal!

2008 Mar 04 08:47 PM

[helplessobs...:]

Judy, as usual a great post.

2008 Mar 05 12:58 AM

[oilsands:]

Judy, thanks for the summary, but I would really like to saee your own views on this extremely important situation.

2008 Mar 05 09:04 AM

[prospector:]

I haven't been investing in stocks for long, but it seems to me that the TMA mgt really does have a say in how their stocks perform. Especially now after their stock has tanked. What investors are looking for is news, whether good or bad (preferably good) on one certain company, sector, or the economy.

What TMA must do is create some good news for itself. This good news would come in the form of acquiring new capital. If they are able to get Granddaddy Deeppockets to invest $1Bil into Thornburg's nearly perfect portfolio, this will create interest in investors to buy their stocks, which in turn, raises more capital for thornburg. For example, on Monday, when TMA stocks tanked, at about 2:30pm the stock was down 60%. TMA created good news by loaning $992 Mil to shore up their books. When this was announced, the stock shot up 40% from $3.53 to nearly $5. Don't you wish you'd bought some shares at this level when TMA was certain to declare bankruptcy tomorrow? (This is practically what the news was telling everyone. This is why the stock tanked.)

All TMA has to do is create good news in the form of acquiring substantial sums of money, then you'll see a nice return to normalcy in the house of TMA.

Please note that whilst the whole subprime issue is abounding in the news, there will continue to be volitility in the financials. So "normalcy" is relative.

2008 Mar 05 09:06 AM

[jcrash:]

Your theory is all well and good prospector, except the whole problem with the markets is that people don't want to lend other people money right now. They are hoarding capital and they will suck it out of anywhere they've lent it where they think they might be about to lose it.

2008 Mar 05 10:06 PM

[jjason:]

If you think TMA will survive, you should first look at how much TMA has in assets and liabilities. On yahoo, yesterday, TMA's debt to equity ration is a whopping 17. I think TMA has 34 Billion Dollars in debt. Judy, you should check these figures out.

2008 Mar 06 07:49 AM