Thornburg Mortgage

Last updated
Thornburg Mortgage Inc.
Public
Industry Mortgage lender
FateFiled for Chapter 11 bankruptcy
Founded1993 [1]
DefunctApril 1, 2009 (2009-04-01)
Headquarters,
Area served
United States
Key people
Garrett Thornburg, Chairman
Larry A. Goldstone, President and CEO
Decrease2.svg US$ -1.55 billion (2007) [2]
Total assets Decrease2.svgUS$ 36.27 billion (2007) [2]
Number of employees
400 (2007) [2]
Website www.thornburgmortgage.com

Thornburg Mortgage was a United States real estate investment trust (REIT) that originated, acquired and managed mortgages, with a specific focus on jumbo and super jumbo adjustable rate mortgages. The company experienced financial difficulties related to the subprime mortgage crisis in 2007 and filed for bankruptcy on April 1, 2009. [3]

A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and timberlands. Some REITs engage in financing real estate.

In the United States, a jumbo mortgage is a mortgage loan that may have high credit quality, but is in an amount above conventional conforming loan limits. This standard is set by the two government-sponsored enterprises, Fannie Mae and Freddie Mac, and sets the limit on the maximum value of any individual mortgage they will purchase from a lender. Fannie Mae (FNMA) and Freddie Mac (FHLMC) are large agencies that purchase the bulk of U.S. residential mortgages from banks and other lenders, allowing them to free up liquidity to lend more mortgages. When FNMA and FHLMC limits don't cover the full loan amount, the loan is referred to as a "jumbo mortgage". Traditionally, the interest rates on jumbo mortgages are higher than for conforming mortgages, however with GSE fees increasing, Jumbo loans have recently seen lower interest rates than conforming loans.

A Super Jumbo Mortgage is classified in the United States as a residential mortgage or other home-equity secured loan in an amount greater than $650,000, although lenders differ on just what constitutes a super jumbo mortgage subject to their own internal investment criteria. Super Jumbo mortgages are made available to borrowers whose loan requirements exceed the guidelines commonly referred to as Jumbo loan limits, which apply to mortgage loan amounts in excess of the FNMA / FHLMC conforming loan limits of 417,000. Unlike Jumbo loan limits, the super jumbo mortgage category is not directly defined, controlled, or regulated by any of these aforementioned agencies. Instead, mortgage lenders internally and independently define their own parameters and criteria for what defines a Super Jumbo mortgage. The minimum loan amount for some lenders to classify a loan as Super Jumbo ranges from $500,000 to $1,500,000, with maximum super jumbo loan amounts generally running into the $10,000,000 to $20,000,000 range.

Contents

It was founded in 1993 and prior to its failure it was a publicly traded corporation headquartered in Santa Fe, New Mexico. It got caught up in the financial crisis of 2007–2010 when it moved from a passive REIT to wholesale origination of mortgages in 2006.

Santa Fe, New Mexico State capital city in New Mexico, United States

Santa Fe is the capital of the U.S. state of New Mexico. It is the fourth-largest city in the state and the seat of Santa Fe County.

History

The company was founded in 1993 by Garrett Thornburg & Larry A. Goldstone. [1] [4] Thornburg Mortgage's headquarters in Santa Fe, New Mexico were built to be eco-friendly.

The company's business model was originally a conventional passive mortgage REIT, but in 1999 Thornburg Mortgage branched out to originating mortgages, [5] working with other financial institutions (a.k.a. correspondent origination). In 2001, it started selling directly to consumers (direct retail origination) and moved into wholesale origination in 2006. [6]

2007 - Financial difficulties

On August 7, an analyst with Deutsche Bank downgraded Thornburg Mortgage to "Sell", based upon concerns that the company could be faced with increasing margin calls despite the high rating of its mortgage backed securities. [7] Beginning August 9, these same securities experienced a "sudden and unprecedented" decline in value, along with an increase in margin calls. [8] In response, during the week beginning August 13 the company stopped accepting loan applications, [9] sold US$20.5 billion of its mortgage backed securities portfolio (in doing so incurring a capital loss of US$930 million), mitigated the potential for margin calls by reducing its repurchase borrowings and delayed payment of a previously announced stock dividend from August 15 to September 17. [10] The company's stock price closed 47% lower when the delayed dividend payment was announced on August 14, but over the next few days regained most of those losses. [11] A couple of weeks later the company also raised US$500 million through a preferred share offering, [12] a move described as "a desperate attempt to stay afloat", [13] and began accepting applications again.

Deutsche Bank German banking and financial services company

Deutsche Bank AG is a German multinational investment bank and financial services company headquartered in Frankfurt, Germany.

Mortgage-backed security security

A mortgage-backed security (MBS) is a type of asset-backed security which is secured by a mortgage or collection of mortgages. The mortgages are aggregated and sold to a group of individuals that securitizes, or packages, the loans together into a security that investors can buy. Bonds securitizing mortgages are usually treated as a separate class, termed residential; another class is commercial, depending on whether the underlying asset is mortgages owned by borrowers or assets for commercial purposes ranging from office space to multi-dwelling buildings. In the United States they may be issued by structures set up by government-sponsored enterprises like Fannie Mae or Freddie Mac, or they can be "private-label", issued by structures set up by investment banks. The structure of the MBS may be known as "pass-through", where the interest and principal payments from the borrower or homebuyer pass through it to the MBS holder, or it may be more complex, made up of a pool of other MBSs. Other types of MBS include collateralized mortgage obligations and collateralized debt obligations (CDOs).

2008

On March 7, the company announced that it would be restating its 2007 financial results, and also that as of the previous day, it had US$610 million in outstanding margin calls, a much greater amount than cash available. [14] Financial analysts speculated that the company may need to seek bankruptcy protection. [15]

Thornburg Mortgage indicated on March 19 that it had reached an agreement with five of its creditors which stopped additional margin calls for one year but included several conditions, the most urgent of which was to raise US$948 million within seven business days. [16] The five creditors were identified as Bear Stearns, Citigroup, Credit Suisse, Royal Bank of Scotland and UBS [17] [18] The company further confirmed that without the additional capital it may have to file for bankruptcy protection. [19] The funding was to be raised through the sale of convertible notes. [16] Having initially been scheduled for March 20, the company pushed back the sale until March 24. [20]

2009

On April 1, 2009, Thornburg Mortgage announced that it would officially cease operations, and enter Chapter 11 bankruptcy. After the sale of all remaining assets, it would no longer exist as a going concern. [21]

Business model

The company's business model was originally a conventional passive mortgage REIT, but Thornburg Mortgage later branched out to originating mortgages, selling directly to consumers (direct retail origination) and wholesale origination. The company marketed its products via print advertising, direct mail and online, avoiding the significant expenses associated with maintaining a network of branches. Other ways that the company looked to reduce expenses was by outsourcing the underwriting and servicing of mortgages. [5]

Thornburg Mortgage's customers were typically affluent and with superior credit. According to the company's own figures (as of March 31, 2007), the average borrower had an annual income of $204,012 and a FICO score of 743. The rate of borrower default on these loans had also historically been significantly lower than the industry average. [6]

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References

  1. 1 2 "About Us". Thornburg Mortgage Inc. Retrieved 2008-03-20.[ permanent dead link ]
  2. 1 2 3 "2007 Annual Report" (PDF). Thornburg Mortgage Inc. Retrieved 2009-03-14.
  3. "Thornburg Mortgage File to Bankruptcy". Bloomberg. Retrieved 2009-04-01.
  4. "Thornburg Mortgage Inc. (OTC: THMR): CEO & Executives". Businessweek. Retrieved 2008-03-20.
  5. 1 2 Glassman, James K (2004-05-13). "Pulling out a Thornburg". National Review Online. Retrieved 2008-03-20.
  6. 1 2 "2007 Annual Shareholders Meeting Presentation" (PDF). Thornburg Mortgage Inc. Retrieved 2008-03-20.
  7. Farrell, Andrew (2007-08-07). "Mortgage Fallout Spreads To Thornburg". Forbes. Retrieved 2008-03-22.
  8. "Thornburg Mortgage Announces Change of Second Quarter Dividend Payment Date to September 17". Thornburg Mortgage Inc. 2007-08-14. Retrieved 2008-03-22.[ permanent dead link ]
  9. Standard & Poor's Equity Research (2007-08-20). "Movers: Capital One, Thornburg Mortgage, Countrywide, Lowe's, Dendreon". Businessweek.com. Retrieved 2008-03-22.
  10. "Thornburg Mortgage Stabilizes Its Financing Platform and Plans to Return to Business as Usual". Thornburg Mortgage Inc. 2007-08-20. Archived from the original on 2007-06-26. Retrieved 2008-03-22.
  11. "Historical Prices for TMA (Thornburg Mortgage Inc.)". Google Finance. Retrieved 2008-03-22.
  12. "Thornburg Mortgage Announces Offering of up to $500 Million of Series F Cumulative Convertible Redeemable Preferred Stock". Thornburg Mortgage Inc. 2007-08-30. Archived from the original on 2007-06-26. Retrieved 2008-03-22.
  13. DeCambre, Mark (2007-08-30). "Thornburg Mortgage Sees Return to Normalcy". thestreet.com. Archived from the original on 2013-02-04. Retrieved 2008-03-22.
  14. "Thornburg Mortgage to Restate Its Financial Statements to Recognize Impairment Loss on Assets". Thornburg Mortgage Inc. 2008-03-07. Retrieved 2008-03-22.[ permanent dead link ]
  15. Stempel, Jonathan (2008-03-10). "Thornburg Survival at Stake After Big Margin Calls". Reuters. Retrieved 2008-03-22.
  16. 1 2 "Thornburg Mortgage Announces One-Year Reverse Repurchase Override Agreement and Proposed $1 Billion Public Offering of Convertible Notes". Thornburg Mortgage Inc. 2008-03-19. Retrieved 2008-03-22.[ permanent dead link ]
  17. Aparajita Saha-Bubna and Lingling Wei (2008-03-20). "Creditors Give Thornburg One Week to Raise Capital". Wall Street Journal. Retrieved 2008-03-22.
  18. Vlastelica, Ryan (2008-03-19). "Thornburg Mortgage shares tumble on reverse financing deal, capital needs". Thompson Financial News Limited. Archived from the original on 2008-03-25. Retrieved 2008-03-20.
  19. "Mortgage firm needs to raise $1bn". news.bbc.co.uk. 2008-03-19. Retrieved 2008-03-20.
  20. Gutierrez, Carl (2008-03-21). "Thornburg Mortgage Delays Its Hail Mary". Forbes. Retrieved 2008-03-22.
  21. "Thornburg Mortgage Announcement". Thornburg Mortgage Inc. 2009-04-01.