Posted on 03/06/2008 10:40:53 PM PST by TigerLikesRooster
March 7, 2008
Major US homes lender near bankruptcy
Tom Bawden in New York
Thornburg, the American mortgage lender, was teetering on the brink of bankruptcy last night as a key creditor demanded that it liquidate assets after failing to put up $28 million (£13.9 million) in extra collateral.
Thornburgs escalating credit crisis coincided with new data showing that foreclosures on American properties hit a record in the fourth quarter of 2007.
The Dow Jones industrial average closed at 12,040.4, down 214.60, and the S&P 500 index fell by 29.35 points to finish at 1,304.35 as investors were forced to accept that the credit crunch was far from over.
The fall in US shares to their lowest for 18 months looks set to continue when the markets reopen today after Citigroup announced late last night that it planned to cut the value of mortgages it has on American properties by $45 billion, or 20 per cent, over the next year.
The bank plans to reduce its exposure primarily by parcelling up a greater portion of its mortgage book into bonds to be sold on. The resulting flood of new bonds is expected to exacerbate the credit crunch by further forcing down the price of securities.
JPMorgan issued Thornburg with a default notice after the lender was unable to meet a $28 million margin call, which the bank demanded after a significant decline in the value of its assets.
Thornburg, which specialises in mortgages of more than $417,000, also holds bonds backed by home loans on its balance sheet as investments. The value of both the mortgages and the bonds have plummeted in recent weeks as investors shy away from most forms of debt. Creditors such as JPMorgan, already reeling from huge writedowns and increasingly nervous about the prospect of further losses, have been demanding increasing amounts of collateral as the assets owned by debtors, such as Thornburg, decline in value.
JPMorgan, which has loaned Thornburg $320 million, said that it planned to force the mortgage group to liquidate some of its assets. The move is expected to trigger similar action from other creditors, which could push Thornburg into bankruptcy. Shares in Thornburg fell by 51.5 per cent to close at $1.65.
Jason Arnold, an RBC Capital Markets analyst, said: Thornburg appears to be on the ropes and, barring a sizeable capital injection, which is possible but seems very unlikely at this point, in our view, we see little in the form of upside.
Cross-default provisions will likely lead other lenders to follow suit in laying claim to assets, leaving little value remaining. With limited options, we now think a bankruptcy filing is a more likely outcome. Thornburg is the latest in a fast-growing list of borrowers that face being forced to liquidate assets by their creditors because they cannot meet the calls for additional collateral.
Peloton Partners last week became the biggest margin-call victim in the UK as the hedge fund was forced by its bankers, led by Goldman Sachs and UBS, to sell assets at a 30 per cent discount to meet their cash calls. The fund saw about $2 billion of its equity wiped out as a result.
Analysts said that they expected many more forced asset liquidations in the coming months as new data showed that US housing foreclosures, a key source of the credit crunch, hit a record high in the final quarter of last year. Foreclosures jumped to 0.83 per cent in the fourth quarter, from 0.54 per cent the year before, partly because borrowers with variable-rate mortgages walked away from their properties before their payments rose, according to the Mortgage Bankers Association.
A foreclosure is a legal process typically set in motion when a borrower falls 90 days behind on mortgage repayments. About 40 per cent end in a forced sale or repossession of the house. In the remaining cases, the bank and borrower reach an alternative repayment schedule.
>>I assume the money in this quote is Fiat money..
The quoted section is fairly early in Quigley’s 1300+ page book. At that point, he is addressing the concept of money generally. Appears to me that beads, gold, whatever, could all be substituted for “money” in this context; in that they are all a form of symbolic wealth and not consumable goods.
I'd are dare there's a nifty thought of now owning a couple dozen light blue tinted flawless 3 ct. diamonds versus their equivalent dollars 2 years ago.
Oh those symbolic ones and zeros in cyberspace have their uses - but you can't eat em, any more than you can eat gold.
and all them zeros on paper get you 42 mpg too, don’t they? I use that paper to start a fire in the fireplace when it gets really cold.
>>and all them zeros on paper
Most of the ones and zeros representing modern wealth aren’t on paper, they only exist in some electronic data storage mechanism.
Value is derived from the perception of value. If the perception turns out to be illusion, where does the value go?
It goes poof.
The Golden Calf was just a lump of melted rock. The power of Baal was in the perception.
Folks are led to worship the strangest things.
You mean it might have to resell some houses at a more reasonable price?!
>>The conclusion is obvious.
Foreign ownership of U.S. soil?
Actually, I remember McCain once mentioned something like that during a talk show (or interview?) He said to the effect that U.S. have a lot of real wealth, land & natural resources which are worth astronomical amount of money. So even if U.S. is in huge debt, we are OK, according to him.:-)
I am not a flipper but banks will basically give a house to a flipper with decent credit.
funny!
In every case, cash changed hands and is still in circulation. The problem is that the people who invested with the prospect of long term cash returns have been swindled. This is a harsh term, but the attempts to hide the true risk of these CMO’s and CDO’s can’t be seen as anything else.
The people who invested in hedge funds were all sophisticated investors who took a chance and many won but now many are losing. Don’t feel sorry for them. They would not have shared their gains with you. Don’t let them share ttheir losses.
You must work for the New York Times. /sarc
There are two problems:
1) They used leverage ("borrowed money").
2) As collateral they used some of the properties. The book value of the properties took a big hit as the result of OTHER lenders being required to hold fire sales, which means that ON PAPER Thornburg didn't have enough collateral to support the borrowing -- even though their cash flow and default rate were fine. This meant the Thornburg is having to hold its own fire sale on properties -- knocking down the value of other high-end homes.
And another Domino falls.
When this will propagate down to more modest homes, I don't know.
No cheers, unfortunately.
I know a few who worship their 42" flat screens, cell phones, wardrobe and laptops.
Maybe time to coin a new an acronym that b$tch-slaps 'PC' (political correctness) into oblivion?
How about 'EC'?:
That would stand for Economic Correctness?
That is being EC means all business and financial dealing are based upon sound proven financial practices deeply rooted in and implemented with integrity completely void of that 'new' fuzzy math? Data is not skewed and omitted to influence a transaction and the MSM will be the main players in pushing the concept? Applies across the board: personally, in industry and in government.
Nope, won't happen...too many think they can take it with them and instant gratification is all that matters in life. Just look at Hollywierd.
“I am not a flipper but banks will basically give a house to a flipper with decent credit.”
Not around here they won’t. They are still trying to get market value for them.
LOL! Flippers are out looking for bargains- as usual.
Except now they are really having to compete with first time buyers being attracted back to the market.
Funny in my town the prices are still climbing ridiculously.
They could fall 50% and people who bought in the last 5 years would still be far far ahead of those who did not.
Doubtful- “Banks” are the worst and most unreasonable sellers I ever deal with.
Remember, you are dealing with the idiots who are trying to cover up bad decisions they - or their bosses - made! Denial is not just a river in Egypt.
That is a term we shall become familiar with in the coming months.
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