Major US homes lender near bankruptcy

Times of London ^ | 03/07/08 | Tom Bawden

[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.

Thornburg’s 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.

[shaft29]

I am economically challenged.

Can you explain something to me.

From what I have been reading, many homeowners are going into default because their interest rates are increasing on their adjustable mortgages.

What I do not understand, is if they were able to make their payment before the adjustment, why the lenders do not restructure the mortgage to an interest rate at which they can make the payment, rather than sitting there with a property that is non performing. Isn’t some profit better than none?

[dennisw]

Google “option ARM”

THose are really evil and many were made in 2003-2006

[jiggyboy]

At this point even those shills realize it's foolish to continue stating 'there is no housing bubble', 'no inflation', 'don't worry about oil prices' and the 'American banks are rock solid' ....lol

Nah they just change the subject. Now "gloom and doomers are talking the economy down".

[FReepaholic]

...Who here thinks property tax assessments will match the reduction of asset prices as quickly as they matched asset price inflation?...

Local gubmint leaders in my county are already whining about "lost revenue" and how they're going to have to cut personnel, yada yada yada. They're talking of raising sales taxes to compensate.

[dfwgator]

They ought to call them ‘ARM and a LEG’ loans.

[BJungNan]

Thanks

[Etoo]

[too many think they can take it with them and instant gratification is all that matters in life. Just look at Hollywierd.]

 

Yes, what people need to inspire (mesmerize) them is a flying rainbow piggybank./sarc

 

26-JUL-2007

Natural Born Predators

[Etoo]

[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.]

;-)

I like it.

[redgolum]

Phase bank failures.

You know, I read a book not long ago called “The Creature from Jekyll Island”. Giving to me by a friend who figured I would get a kick out of it.

What brings it to mind is that the last chapter in the book talks of just what is going on now.

[Centurion2000]

I wonder just how much of the world’s apparent wealth lies in these multiple-leveraged phantoms. I have had many discussions on the topic over the past year with a friend who argued that “on-paper” dollars were just as valid as cash-in-hand dollars.

So much money can simply disappear only if it never really existed in the first place.

Well, fiat monetary systems rely on faith. Ironic isn't it? Even atheists have to have faith in something.

[SeaHawkFan]

For all the grief ex-texamn got, he sure seems to have gotten this right. He predicted all this stuf quite a while before the crisis hit.