Jumbo lender Thornburg Mortgage Inc. says it won’t make a 68-cents-per-share payment to shareholders today as scheduled because of a “sudden and unprecedented decline” in the market price of its mortgage securities.
The decline began on Aug. 9 and prompted an increase in margin calls by the Santa Fe-based lender’s creditors, the company said in a press release explaining the decision.
Thornburg Mortgage said it has also experienced delays in its ability to fund loans, prompting the company to stop accepting new requests to lock in rates for four days.
“We regret having to take these steps, but present market conditions have placed unprecedented restrictions on our industry and on us that have forced this change in policy,” the company said in a memo to lending partners that was posted on IndyMac Bank’s company blog. “Due to the fact that very few lenders are currently accepting locks, Thornburg Mortgage is being inundated with lock requests.”
Organized as a real estate investment trust (REIT), Thornburg Mortgage specializes in adjustable-rate jumbo mortgages. Loan originations totaled $1.7 billion in the second quarter — a 21 percent increase from the same period last year, the company said in its most recent report to investors.
At the end of June, Thornburg Mortgage reported holding $48.7 billion of hybrid adjustable-rate mortgage (ARM) assets, with the interest rates on $5.7 billion in loans set to reset in the next 18 months.
The ARM assets included “A quality” ARM loans that Thornburg Mortgage purchased or originated and securitized into ARM pass-through certificates or collateralized mortgage debt financings for the company’s own portfolio. Thornburg Mortgage retains the risk of potential credit losses on all of the loans, and had set aside $15.7 million for loan losses as of June 30.
Thornburg Mortgage said it was also a counterparty to hybrid ARM hedging instruments consisting of $44.3 billion in swap agreements. The company also had $24.7 billion of reverse repurchase agreements outstanding at the end of June.
Reverse repurchase agreements involve a simultaneous sale of pledged securities to a creditor, which Thornburg has agreed to repurchase at a future date at a higher price, with the difference representing the cost of borrowing.
Thornburg Mortgage warned investors that the company’s borrowing ability under such agreements “could be limited, and lenders could initiate margin calls in the event of interest-rate changes or if the value of our ARM assets declines for other reasons.”