Thornburg Mortgage Inc. said Monday that it plans to resume lending "within the next two weeks" by reopening its loan lock desk and gradually accepting new loan applications around the country.
The Santa Fe, N.M., prime jumbo lender, which had suspended funding last week, also said Monday that it had shored up its finances by liquidating $20.5 billion of mortgage-backed securities, or roughly 35% of its assets.
It described the assets that it sold as "its lowest-yielding and negative-spread assets" and said mortgage yields have risen so much that new assets will generate "far better portfolio margins than they have been in the past several years."
Nevertheless, Thornburg shares fell as much as 13% Monday and closed at $13.50, off 10% from Friday's closing price, partly on concerns about the hit to earnings from the asset sales.
Still, that Thornburg pulled the sales off shows that at least some mortgage assets remain liquid, observers said.
"Hits of varying degrees may be taken by sellers, but as long as there's liquidity and enough bidders to make the process competitive, there is an exit for these mortgage loans," said Thomas McCarthy, a co-head of loan sales at the advisory services unit of the New York investment bank Carlton Group Ltd.
Larry Goldstone, Thornburg's president and chief operating officer, said in a press release that the company has "nearly stabilized … [its] liquidity situation" with its asset sales.
He called the current mortgage financing market "even more disruptive" than two previous industry downturns in 1994 and 1998, and called his own company's liquidity crisis "regrettable" and "disappointing."
Still, he said he expects Thornburg to "be substantially more profitable than it has been over the past several years."
Thornburg, a real estate investment trust, also had suspended its dividend last week when its lenders prompted a liquidity crisis by making margin calls. On Monday, Thornburg said it now plans to pay the 68-cent-a-share dividend on Sept. 17. But it said it "is not yet prepared to offer earnings or dividend guidance" for the future.
Jason Arnold, an analyst at Royal Bank of Canada's RBC Capital Markets, said in an interview Monday that investors remained concerned about whether the dividend was secure and about the impact the sale of assets would have on earnings.
"This is a sizable sale of assets, and there are investors looking at what is a significant erosion of book value and what's going to happen to the dividend stream," Mr. Arnold said.
Thornburg's mortgage asset portfolio now stands at $36.4 billion, down from $56.4 billion at June 30. Its book value has fallen to $12.40 a share, from $14.28 a share a week ago and $19.38 a share on June 30.
With the sale of assets, Thornburg reduced the margin calls against its collateralized borrowings.
It also said it realized a $40 million net gain by terminating $41.1 billion of interest rate hedging instruments.
Mr. Arnold said the "very rapid and surprising decline" of Thornburg, a company that specializes in making loans well above the $417,000 conforming limit to wealthy borrowers, showed how its business model - in which it held loans in its portfolio partly financed with short-term debt - was "at risk."
"It's just unreal to see triple-A-rated, high-quality assets eroding so quickly in value," he said.
Roughly 94% of Thornburg's real estate assets are rated triple-A or double-A, and just 79 of the 38,000 loans in its portfolio are delinquent. According to the Mortgage Bankers Association, the national delinquency rate for prime adjustable-rate loans was 2.32% in the first quarter.
Other parts of the market remain moribund. Mr. McCarthy said a pool of performing subprime loans that might have sold for 100 to 102 cents on the dollar six weeks ago would now trade in the 70s. But such comparisons are difficult "because portfolios being sold today include assets that would previously have been put into a security and often are marketed now with a mixed bag …including early-payment defaults, document deficiencies etc. in the same pools.
