Rational

6 Comments

    • Don't Count on a Fast Turnaround for Thornburg Mortgage [view article]
      Considering that TMA still has almost no delinquencies and had nicely rising origination volume in 1Q08, it was the "mark to market" accounting rule changes that destroyed them. In terms of actual cash flows, they are profitable in 4Q07 and 1Q08 was looking much stronger. But when your 99.53% performing AAA asset (AAA without using credit enhancement from the insurance companies, mind you) is selling at 70 cents on the dollar, it's lights out.

      The companies lucky enough to buy TMA's assets will be marketing it back up to 95-99 once the credit crunch is behind us, or the loans eventually payoff over time.       May 01 05:08 PM
    • Why I am Selling Thornburg Mortgage [view article]
      Once the liquidity comes back to mortgage securities (another year? two? five?) and they write this stuff back up, the new owners will certainly be slapping themselves on the back... Apr 11 01:19 PM
    • Let Thornburg's Demise Be a Lesson to You [view article]
      TMA's origination business is solid and you can see from the $950M or so securitization they closed on a couple months ago they have no problem securing permanent financing (not subject to margin calls) on their new loans. The problem is the older Alt-A loans they never securatized in order to make more profit by financing them via commercial paper, and in August 2007 the commercial paper market closed to mortgage lenders. Thus as Alt-A values drop regardless of performance, margin calls/etc pile on and we see the end result.

      TMA did about $350M in origination in 4th quarter 2007 at a nice profit. Business grew to $300M in January and another $300M in February. If not for the margin calls/etc, they were on pace to grow new origination volume to around $6B this year. The overall mortgage industry is slowing, but TMA's market share is very small and they've barely tapped into the wholesale mortgage broker market.

      All of these new originations move from warehouse line to CMO without the need for repo agreements or other things subject to margin calls. If only they could have shed the Alt-A loans back in August or before the meltdown...       Apr 10 04:50 PM
    • Mark to No Market [view article]
      I agree that mark to market accounting changes have caused untold havoc on our financial market. In fact it's pretty much the reason a company like Thornburg almost went bankrupt. Mark-to-market forced sales on their repo agreements, yet their overall portfolio had a delinquency rate of only .47% and almost no realized credit losses. Isn't it something like $750K in realized credit losses the past 10 years? Insanity.

      I agree with the idea of a "mark to performance" measure when you are holding the loans to maturity. Perhaps take the present value of future cash flows factoring in the prepayment speeds, and cut it by the delinquency rate. Or even twice the delinquency rate.

      This means AAA stuff like Thornburg had would remain valued at nearly full value on their books (all of their loans originated were intended to hold for investment until the forced selling of August 2007). Lenders with "toxic" sub-prime loans with 30% delinquency rates would still be able to value them at something better than 10 cents on the dollar. Who really thinks 10 cents on the dollar is a fair value for mortgage security where 70% of the people are paying on time? You'd make back the purchase price of that security in less than 2 years of P&I receipts... Even if you docked the mark to performance value by twice the delinquency rate, a 30% delinquent CMO is still 30 cents on the dollar instead of 10. But a .5% delinquent TMA CMO is at 99 cents on the dollar, instead of 70 cents.       Apr 08 04:49 PM
    • Thornburg Needs To Raise $610 Million - Fast [view article]
      The sad thing is that daily operations are profitable, they have rapidly growing origination volume in spite of an industry-wide slowdown, and their new loans can be packaged for CMO financing without a problem. All of the Alt-A losses are only on paper and totally unrealized... .47% delinquency rate. You'd think someone would loan them $1B or more at, say, 15% via commercial paper for 3 years non-callable. With margin calls out of the way, limited risk but high return. Mar 10 09:09 AM
    • Thornburg Mortgage Inc.: Attack of the Verbs [view article]
      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.       Mar 03 06:32 PM
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