Thornburg Mortgage Tanks as Liquidity Concerns Mount

Ultra-prime mortgage lender Thornburg Mortgage Inc. said on Monday that it had failed to meet $270 million in margin calls received since just last week. On Thursday, the company had disclosed in a 10-K filing with the SEC that it had already been subject to $300 million in margin calls on its $2.9 billion portfolio of Alt-A mortgage-backed securities. Nearly $600 million in margin calls over the past few weeks — and failing to meet the most recent round of $270 million — have put a serious strain on the company’s liquidity, with Bloomberg reporting Monday that at least one analyst has suggested that bankruptcy is possible for the lender. Thornburg said it is working to meet the outstanding margin calls by selling securities or raising additional debt, and characterized the latest liquidity crisis as “strictly the result of continued deterioration of prices of mortgage-backed securities precipitated by difficult market conditions.” MarketWatch’s Alistair Barr reported last week that Thornburg is riding the tail of a Valentine’s Day disclosure by UBS AG that it is highly exposed to Alt-A MBS, sparking investor concern that UBS may become a forced seller of Alt-A mortgage securities. That disclosure, sources suggest, is behind most of the current margin calls and forced sales — setting off a potentially dangerous chain reaction for market participants in the RMBS space. “The current market price of assets has become disconnected from their underlying recoverable value, resulting in increased volatility and imprecise quarter-to-quarter comparisons of asset valuations,” said Larry Goldstone, Thornburg’s president and chief executive officer. “We believe that this latest downturn in the mortgage finance market was brought on by a continued lack of trust and confidence in the broader financial markets and has resulted in a substantial excess of sellers versus buyers of high quality mortgage securities.” Thornburg’s stock was hammered Monday, losing half of its market value before the morning trading session was complete. The stock had fallen more than 56 percent to $3.89 in heavy selling volume by 12:36pm EST, when this story was published.