Originally Posted By: Oldmoparguy1
I didn't do that good, but I backed up the truck this AM. Thinking about throwing in the kitchen sink and hocking the washer and dryer....
I was so busy I didn't even know it popped back up to $5, but closed at $4.32. Rats.
PF Nibbler Thornburg Mortgage (NYSE: TMA) operates as an originator of primarily adjustable-rate mortgages (ARM) that are larger than what the market deemed a conforming size. Its borrowers are high credit scorers that pay their bills and are current on mortgages. Of these originations, the company (structured as a REIT pass through) holds and services them.
In addition, the company also purchases both direct mortgages and packaged bond issues from other financials--ranging from banks to mortgage companies. These purchased securities are then managed in a portfolio of investments.
It also has issued a series of pass-through trusts, which are simply pools of mortgages that are placed and traded in the US over-the-counter (OTC) market. These tend to be primarily made up of top-quality loans, consistent with its core originations. It owns interests in these trusts either partially or in full.
The company funds itself in a variety of ways.
First, it has a base of common and preferred shares that form its equity capital. It also has an intermediate-term bond in the public market. In addition, it maintains bank credit lines that are either unsecured or secured by specific collateral such as mortgages and mortgage securities.
Its challenges recently have stemmed from the portion of its portfolio that’s made up of mortgage securities that it didn’t originate and trades with other financials.
You’ve read and heard about the margin calls of the company. Because Thornburg (like the entire universe of banks and financials) doesn’t invest or trade on a cash basis, its counterparts that trade with the company demand more cash or the partial or full sale of the mortgage bonds held in investment and/or trading accounts.
This doesn’t mean that the mortgages are increasing in defaults. In fact, the core portfolio’s delinquency and default rates are infinitesimal. But that won’t stop the market from pushing mortgage bond prices lower and sending rates higher.
Thornburg understands the intrinsic values of its mortgages and mortgage bonds. Although, it hasn’t done as great a job at estimating how the market might price the overall mortgage bond market.
However, after last summer, the company reduced its leverage and the overall size of its trading and investment accounts as well as the entire mortgage portfolio.
But it still has to deal with its near-term financing and margin loan liabilities. Since last summer, it’s able to do so and then some. And, as a result, the market has been easily willing to invest in new loan facilities, new trust issues, new preferred issues and other lending to the company.
The news that it was in default over the weekend was overblown. It stemmed from older news embedded in the company’s 10-K report as well as out-of-context reporting from other company releases made over the past several days.
We encourage visiting Thornburg’s Web site to read the company’s 10-K as well as its recent reports.
Meanwhile, not one of its trading partners or lenders has issued any complaints or filings. Instead, what has happened is that Thornburg has shifted even more of its loans from near-term margin and reverse-repurchase financing. Reverse repurchases occur when a bank or financial sells bonds (mortgages, treasuries, corporates, munis or other bonds) at a set price and contracts with another bank or financial to buy them back at a set price at an agreed upon time in the future. The difference between the sell and repurchase is implied interest.
Some of these transactions are what’s behind the margin calls. Some of the counterparties to these deals have the ability to demand additional cash back if the market moves the bids for the posted bonds lower.
Thornburg’s shift in financing has been made into direct bank and other loans based on the company’s assets, including its top-quality originated mortgages. Today the company acquisitioned an additional $1 billion loan with a currently undisclosed bank or financial institution.
This covers the company for the foreseeable future. In addition, the company has stated that it’s been moving toward this traditional financing over the past few months following last year’s market turmoil.
Lenders’ confidence to keep cash coming to the company is a solid sign that they see similar credibility that we’ve come to understand.
Thornburg Mortgage is on watch, and we’ll continue to survey the company as it works through the challenging mortgage and credit markets.