Thornburg Mortgage takes aggressive action to stabilize its financing platform

By Lisa Kerner

Charlotte, N.C., Aug. 20 - Thornburg Mortgage, Inc. announced on Monday the sale of "a substantial portion" of its AAA-rated mortgage securities portfolio as well as a "significant reduction" in its borrowings portfolio.

The company said the actions were necessary to meet its liquidity and financing needs caused by "rapidly declining mortgage securities prices" in addition to declines in the value of its hedging instruments.

Over the past six days, Thornburg:

• Sold some $20.5 billion of primarily AAA-rated mortgage-backed securities;

• Reduced its mortgage asset portfolio to $36.4 billion, from $56.4 billion at June 30;

• Reduced its reverse repurchase and commercial paper borrowings to some $12.4 billion, from $32.9 billion at June 30; and

• Terminated approximately $41.1 billion of interest rate hedging instruments.

Thornburg, as a result of these actions, expects a capital loss of $930 million for the quarter ending Sept. 30 and a net gain of about $40 million.

The company did not adjust earnings or dividend guidance. Thornburg's GAAP book value is estimated to be $12.40 as of Aug. 17, compared with an estimated $14.28 per share as of Aug. 13 and an estimated $19.38 per share as of June 30, a company news release stated.

Thornburg would like to reopen its loan lock desk within the next two weeks to gradually begin locking loans for clients and accepting new jumbo adjustable-rate mortgage applications. The Santa Fe, N.M., prime residential mortgage lender said it expects the gradual resumption of funding loans for its lending partners and their clients.

"We have now greatly reduced our exposure to continued widening of the spread between our mortgage assets and our hedging instruments and the associated margin calls against our collateralized borrowings and hedging instruments," president and chief operating officer Larry Goldstone said in the release.

"As a result, we believe we have nearly stabilized our liquidity situation, which we expect will allow us to begin to resume normal operations over the next two weeks as a leading residential mortgage portfolio lender in the high quality jumbo and super-jumbo adjustable-rate mortgage market."

Goldstone said that had Thornburg not taken such aggressive steps, the company's financial position would have "eroded even more sharply," likely causing greater losses.

"Unfortunately, the mortgage market continues to be in a state of rapid change so we will continue to evaluate the market and determine the best course of action for the company and our shareholders to further solidify our financing situation and mitigate the impact of additional margin calls in the event they should occur," Goldstone added.

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