Thornburg Mortgage
Encyclopedia
Thornburg Mortgage Inc., , was an American
publicly traded corporation headquartered in Santa Fe, New Mexico
. Founded in 1993, the company is a real estate investment trust
(REIT) that originates, acquires & manages mortgages, with a specific focus on jumbo and super jumbo
adjustable rate mortgage
s. During the Financial crisis of 2007–2010 the company experienced financial difficulties related to the ongoing subprime mortgage crisis
, and it filed for bankruptcy on April 1, 2009.
. Other ways that the company looks to reduce expenses is by outsourcing the underwriting and servicing of its mortgages.
Thornburg Mortgage's customers are 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 has also historically been significantly lower than the industry average.
downgraded Thornburg Mortgage to "Sell", based upon concerns that the company could be faced with increasing margin call
s despite the high rating of its mortgage backed securities
. Beginning August 9 these same securities experienced a "sudden and unprecedented" decline in value, along with an increase in margin calls. In response, during the week beginning August 13 the company stopped accepting loan applications, 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. 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. A couple of weeks later the company also raised US$500 million through a preferred share offering, a move described as "a desperate attempt to stay afloat", and began accepting applications again.
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. The five creditors were identified as Bear Stearns
, Citigroup
, Credit Suisse
, Royal Bank of Scotland
and UBS
The company further confirmed that without the additional capital it may have to file for bankruptcy protection. The funding was to be raised through the sale of convertible notes
. Having initially been scheduled for March 20, the company pushed back the sale until March 24.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
publicly traded corporation headquartered in Santa Fe, New Mexico
Santa Fe, New Mexico
Santa Fe is the capital of the U.S. state of New Mexico. It is the fourth-largest city in the state and is the seat of . Santa Fe had a population of 67,947 in the 2010 census...
. Founded in 1993, the company is a real estate investment trust
Real estate investment trust
A real estate investment trust or REIT is a tax designation for a corporate entity investing in real estate. The purpose of this designation is to reduce or eliminate corporate tax. In return, REITs are required to distribute 90% of their taxable income into the hands of investors...
(REIT) that originates, acquires & manages mortgages, with a specific focus on jumbo and super jumbo
Super jumbo mortgage
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...
adjustable rate mortgage
Adjustable rate mortgage
A variable-rate mortgage, adjustable-rate mortgage , or tracker mortgage is a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets. The loan may be offered at the lender's standard variable...
s. During the Financial crisis of 2007–2010 the company experienced financial difficulties related to the ongoing subprime mortgage crisis
Subprime mortgage crisis
The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....
, and it filed for bankruptcy on April 1, 2009.
History
The company was founded in 1993 by Garrett Thornburg & Larry A. Goldstone. Thornburg Mortgage's headquarters in Santa Fe, NM were built to be eco-friendly.Business model
Having begun as a conventional mortgage, REIT, Thornburg Mortgage branched out to also originate mortgages, working with other financial institutions (a.k.a. correspondent origination) from 1999, selling directly to consumers (direct retail origination) from 2001 and moving into wholesale origination in 2006. The company markets its products via print advertising, direct mail and online, avoiding the significant expenses associated with maintaining a network of branchesBranch (banking)
A branch, banking center or financial center is a retail location where a bank, credit union, or other financial institution offers a wide array of face-to-face and automated services to its customers....
. Other ways that the company looks to reduce expenses is by outsourcing the underwriting and servicing of its mortgages.
Thornburg Mortgage's customers are 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
Credit score (United States)
A credit score in the United States is a number representing the creditworthiness of a person, the likelihood that person will pay his or her debts....
score of 743. The rate of borrower default
Default (finance)
In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant of the debt contract. A default is the failure to pay back a loan. Default may occur if the debtor is either...
on these loans has also historically been significantly lower than the industry average.
2007
On August 7, an analyst with Deutsche BankDeutsche Bank
Deutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...
downgraded Thornburg Mortgage to "Sell", based upon concerns that the company could be faced with increasing margin call
Margin Call
Margin Call is a 2011 American independent drama film, written and directed by J.C. Chandor. The film has an ensemble cast that includes Kevin Spacey, Demi Moore, Paul Bettany, Jeremy Irons, Zachary Quinto, Stanley Tucci, Simon Baker, and Penn Badgley...
s despite the high rating of its mortgage backed securities
Mortgage-backed security
A mortgage-backed security is an asset-backed security that represents a claim on the cash flows from mortgage loans through a process known as securitization.-Securitization:...
. Beginning August 9 these same securities experienced a "sudden and unprecedented" decline in value, along with an increase in margin calls. In response, during the week beginning August 13 the company stopped accepting loan applications, 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. 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. A couple of weeks later the company also raised US$500 million through a preferred share offering, a move described as "a desperate attempt to stay afloat", and began accepting applications again.
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. Financial analysts speculated that the company may need to seek bankruptcy protection.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. The five creditors were identified as Bear Stearns
Bear Stearns
The Bear Stearns Companies, Inc. based in New York City, was a global investment bank and securities trading and brokerage, until its sale to JPMorgan Chase in 2008 during the global financial crisis and recession...
, Citigroup
Citigroup
Citigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...
, Credit Suisse
Credit Suisse
The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...
, Royal Bank of Scotland
Royal Bank of Scotland
The Royal Bank of Scotland Group is a British banking and insurance holding company in which the UK Government holds an 84% stake. This stake is held and managed through UK Financial Investments Limited, whose voting rights are limited to 75% in order for the bank to retain its listing on the...
and UBS
UBS AG
UBS AG is a Swiss global financial services company headquartered in Basel and Zürich, Switzerland, which provides investment banking, asset management, and wealth management services for private, corporate, and institutional clients worldwide, as well as retail clients in Switzerland...
The company further confirmed that without the additional capital it may have to file for bankruptcy protection. The funding was to be raised through the sale of convertible notes
Convertible bond
In finance, a convertible note is a type of bond that the holder can convert into shares of common stock in the issuing company or cash of equal value, at an agreed-upon price. It is a hybrid security with debt- and equity-like features...
. Having initially been scheduled for March 20, the company pushed back the sale until March 24.