In the latest sign of how badly firms have been hurt by the credit crunch, Thornburg Mortgage Inc. Friday said there is "substantial doubt" about its ability to continue as a going concern, citing deterioration of prices of mortgage-backed collateral and a liquidity position that is under unprecedented pressure.
Thornburg issued the warning as it said it will restate financial statements for the past two years to recognize write-downs on assets that may result in a $427.8 million charge for 2007.
Shares were recently down 26% at $1.22; the stock was above $11 in the middle of last week.
The real-estate investment trust said its position has weakened amid increased margin calls caused by significant deterioration of prices of mortgage-backed collateral.
Thornburg said it has received $1.78 billion in margin calls this year and has met $1.17 billion of them. The remaining $610 million "significantly exceeded its available liquidity."
Thornburg reached a temporary deal with the remaining parties holding securities that the firm could be forced to buy back, and that freezes further margin calls through Friday. It has received default notices from four lenders as a result of not meeting reverse repurchase agreements.
Chief Executive Larry Goldstone said, "The mortgage financing market's complete inability to differentiate and appropriately value superior AAA-/AA-rated mortgage securities from all other mortgage assets is as unprecedented as it is frustrating."
He added, "Quite simply, the panic that has gripped the mortgage financing market is irrational and has no basis in investment reality."
Thornburg's most recent problems began two weeks ago when UBS AG (UBS) announced that it was writing down the value of securities backed by Alt-A mortgages, a move that decreased the value of similar securities held by Thornburg that it was using as collateral on its borrowing agreements. The company's creditors responded by requiring Thornburg to put up $300 million in additional collateral, which it was able to do using its cash reserves.
But last week, Thornburg was hit by an additional $270 million in margin calls as its collateral fell further, and the company said it wasn't able to meet "the majority" of the new cash requirements.
Thornburg on Thursday was circulating a list of slightly more than $4 billion in alt-A mortgage bonds available for sales as the home-loan lender struggled to raise funds to meet demands from its creditors. They were being offered at a discount of more than 90 cents on the dollar to as low as about 75 cents, said an investor familiar with the matter.
Alt-A loans are made to borrowers with generally strong credit but are loans that lack adequate verification of, for instance, income or assets. This lax paperwork paved the way for aggressive lending to the less creditworthy and emboldened borrowers to exaggerate their financial prowess. Such loans were also a favorite of real-estate investors holding to flip properties for a quick profit.
