Thornburg Mortgage Inc. expects this year's profits to reach the high end of analysts' estimates, which ranged from $2 to $2.40 a share, as billions of dollars of hybrid adjustable-rate mortgages reset.
Larry Goldstone, the Santa Fe, N.M., jumbo lender's president and chief operating officer, said on a conference call Wednesday to discuss fourth-quarter results that hybrid borrowers have not refinanced into fixed-rate loans. Those who have refinanced waited until the last day before the reset date to do so, and then they took out new ARMs from Thornburg, he said.
"We are seeing an increasing number of people who are surviving the fixed-rate period and electing to keep an adjustable-rate product and refinancing down the road," Mr. Goldstone said. The trend will result in higher coupons and slower prepayments, he said.
Nevertheless, Thornburg holds $7.4 billion of hybrid ARMs that are scheduled to reset over the next two years, and some analysts say they are worried it will lose these borrowers.
"What happens if interest rates start to fall?" Richard Shane, an analyst at Jefferies & Co., asked on the call. "Given you have one-third of your portfolio resetting, what are your assumptions on prepayments swapping from adjustable rates to fixed-rate loans?"
Still, Thornburg shares surged 8% Wednesday, after the REIT said that despite fears to the contrary, it will pay a dividend for this quarter.
Fourth-quarter profits rose 10%, to $80.3 million, or 68 cents a share, which beat the average estimate of analysts by 9 cents.
