A real estate investment trust, or REIT, that specializes in buying mortgage securities backed by adjustable rate loans is upping its commitment to the market.
Thornburg Mortgage Asset Corp. plans to tap into a deep vein of adjustable rate mortgages by purchasing these loans directly from residential lenders and then securitizing them.
The move demonstrates how investment companies like Thornburg fashion programs to provide capital to the residential housing market while earning profits for pension funds, profit-sharing plans, 401(k) retirement plans, and other investors.
As an REIT, Thornburg passes most of its income to investors in return for a favorable tax status that can provide a competitive edge when buying and selling adjustable rate loans.
Through the new program, Thornburg expects to consider buying more than $1 billion of whole loans each year that it would not have looked at in the past.
"This opens a lot of opportunities," said Larry A. Goldstone, president of the Santa Fe, N.M., firm.
Until now, Thornburg did little business with individual loans. It preferred to invest in the loans after they had been securitized by Wall Street investment firms.
Thornburg expects small and midsize banks and thrifts to provide most of the loans. "We want to increase our exposure to these types of sellers," Mr. Goldstone said. Through purchase agreements, "we can give them some aggressively priced loan product to market."
In addition to providing a broader product mix, the arrangement will give lenders a way to replenish capital to make new loans, Mr. Goldstone said.
Thornburg has already bought $30 million of loans under the new program, said David Akre, who was hired last month to begin the program.
Mr. Akre, who held a similar trading position with GE Capital Mortgage Corp., described his efforts as "loan acquisition through an informal network" of lenders, conduits, and investors who contact each other about product availability.
Mr. Akre said he pores over origination documents that show credit report scores, employment history, and debt-to-income ratios, looking for value.
He also takes note of lenders' track records. "It's an objective and subjective process," Mr. Akre said.