Thornburg Mortgage

Infobox_Company
name = Thornburg Mortgage Inc.

type = Public (nyse|TMA)
genre =
foundation = 1993cite web| title=About Us | url=https://www.thornburgmortgage.com/mortgage/loans/about/index.jsp | accessdate=2008-03-20 | publisher=Thornburg Mortgage Inc.]
founder =
location_city = Santa Fe, New Mexico
location_country = United States
location =
locations =
area_served = United States
key_people = Garrett Thornburg, Chairman
Larry A. Goldstone, President and CEO
industry = Mortgage lender
products =
services =
revenue =
operating_income =
net_income = profitUS$297.7 million (2006)cite web| title=2006 Annual Report | url=http://thomson.mobular.net/thomson/7/2177/2399/ | accessdate=2008-03-20| publisher=Thornburg Mortgage Inc.]
assets =
equity =
owner =
num_employees =
parent =
divisions =
subsid =
slogan = "Simply Exceptional"
homepage = [http://www.thornburgmortgage.com/ www.thornburgmortgage.com]
footnotes =
intl =

Thornburg Mortgage Inc., nyse|TMA, is 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 mortgages. During 2007 and 2008 the company experienced financial difficulties related to the ongoing subprime mortgage crisis, and its stock price fell dramatically.

History

The company was founded in 1993 by Garrett Thornburg & Larry A. Goldstone.cite web| title=Thornburg Mortgage Inc. (TMA): CEO & Executives | url=http://investing.businessweek.com/research/stocks/people/people.asp?symbol=TMA | accessdate=2008-03-20| publisher=Businessweek]

Business Model

Having begun as a conventional mortgage REIT, Thornburg Mortgage branched out to also originate mortgages,cite news|title=Pulling out a Thornburg | url=http://www.nationalreview.com/nrof_glassman/glassman200405130823.asp | date=2004-05-13 | accessdate=2008-03-20 | first=James K | last=Glassman | publisher=National Review Online] 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.cite web| title=2007 Annual Shareholders Meeting Presentation | url=http://library.corporate-ir.net/library/11/117/117476/items/241199/2007AnnualMeetingFINAL2.pdf | accessdate=2008-03-20| publisher=Thornburg Mortgage Inc.] The company markets 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 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.

Financial Difficulties

2007

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.cite news|title=Mortgage Fallout Spreads To Thornburg | url=http://www.forbes.com/markets/2007/08/07/thornburg-margin-call-markets-equity-cx_af_0807markets36.html | first=Andrew | last=Farrell | accessdate=2008-03-22 | date=2007-08-07] Beginning August 9 these same securities experienced a "sudden and unprecedented" decline in value, along with an increase in margin calls.cite web| title=Thornburg Mortgage Announces Change of Second Quarter Dividend Payment Date to September 17 | url=http://investor.thornburgmortgage.com/phoenix.zhtml?c=117476&p=irol-newsArticle&ID=1040353&highlight= | date=2007-08-14 | accessdate=2008-03-22 | publisher=Thornburg Mortgage Inc.] In response, during the week beginning August 13 the company stopped accepting loan applicationscite news| title=Movers: Capital One, Thornburg Mortgage, Countrywide, Lowe's, Dendreon | url=http://www.businessweek.com/investor/content/aug2007/pi20070820_025291.htm?chan=investing_investing+index+page_stocks+%2Bamp%3B+markets | author=Standard & Poor's Equity Research | date=2007-08-20 | accessdate=2008-03-22 | publisher=Businessweek.com] , 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.cite web | title=Thornburg Mortgage Stabilizes Its Financing Platform and Plans to Return to Business as Usual | url=http://investor.thornburgmortgage.com/phoenix.zhtml?c=117476&p=irol-newsArticle&ID=1041914&highlight= | date=2007-08-20 | accessdate=2008-03-22 | publisher=Thornburg Mortgage Inc.] 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.cite web | title=Historical Prices for TMA (Thornburg Mortgage Inc.) | url=http://finance.google.com/finance/historical?cid=657103&startdate=Aug+9%2C+2007&enddate=Aug+28%2C+2007 | accessdate=2008-03-22 | publisher=Google Finance] A couple of weeks later the company also raised US$500 million through a preferred share offering,cite web|title=Thornburg Mortgage Announces Offering of up to $500 Million of Series F Cumulative Convertible Redeemable Preferred Stock | url=http://investor.thornburgmortgage.com/phoenix.zhtml?c=117476&p=irol-newsArticle&ID=1046432&highlight= | date=2007-08-30 | accessdate=2008-03-22 | publisher=Thornburg Mortgage Inc.] a move described as "a desperate attempt to stay afloat",cite news|title=Thornburg Mortgage Sees Return to Normalcy | url=http://www.thestreet.com/newsanalysis/banking/10377295.html | first=Mark | last=DeCambre | date=2007-08-30 | accessdate=2008-03-22 | publisher=thestreet.com] and began accepting applications again.

2008

On March 7 the company announced that it would be restating it's 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.cite web | title=Thornburg Mortgage to Restate Its Financial Statements to Recognize Impairment Loss on Assets | url=http://investor.thornburgmortgage.com/phoenix.zhtml?c=117476&p=irol-newsArticle&ID=1116530&highlight= | date=2008-03-07 | accessdate=2008-03-22 | publisher=Thornburg Mortgage Inc.] Financial analysts speculated that the company may need to seek bankruptcy protection.cite news| title=Thornburg Survival at Stake After Big Margin Calls | url=http://www.reuters.com/article/bankingFinancial/idUSN0734467120080310 | first=Jonathan | last=Stempel | date=2008-03-10 | accessdate=2008-03-22 | publisher=Reuters]

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.cite web| title=Thornburg Mortgage Announces One-Year Reverse Repurchase Override Agreement and Proposed $1 Billion Public Offering of Convertible Notes | url=http://investor.thornburgmortgage.com/phoenix.zhtml?c=117476&p=irol-newsArticle&ID=1120223&highlight= | date=2008-03-19 | accessdate=2008-03-22 | publisher=Thornburg Mortgage Inc.] The five creditors were identified as Bear Stearns, Citigroup, Credit Suisse, Royal Bank of Scotland and UBScite news| title=Creditors Give Thornburg One Week to Raise Capital | url=http://online.wsj.com/article/SB120593461738448435.html?mod=googlenews_wsj | author=Aparajita Saha-Bubna and Lingling Wei | date=2008-03-20 | accessdate=2008-03-22 | publisher=Wall Street Journal] cite news|title=Thornburg Mortgage shares tumble on reverse financing deal, capital needs | url=http://money.cnn.com/news/newsfeeds/articles/newstex/AFX-0013-23889637.htm | date=2008-03-19 | accessdate=2008-03-20 | first=Ryan | last=Vlastelica | publisher=Thompson Financial News Limited] The company further confirmed that without the additional capital it may have to file for bankruptcy protection.cite news|title=Mortgage firm needs to raise $1bn | url=http://news.bbc.co.uk/1/hi/business/7305708.stm | date=2008-03-19 | accessdate=2008-03-20 | publisher=news.bbc.co.uk] 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.cite news| title=Thornburg Mortgage Delays Its Hail Mary | url=http://www.forbes.com/markets/emergingmarkets/2008/03/21/thornburg-mortgage-bankruptcy-markets-equity-cx_cg_0321markets10.html | first=Carl | last=Gutierrez | date=2008-03-21 | accessdate=2008-03-22 | publisher=Forbes]

References