I've long held that people who think this is only a subprime issue are missing the whole boat, and that problems will spread up the food chain to alt A mortgages and prime mortgages, but every time these darn homebuilders and financials rally on "hope", I feel underexposed so hence the move to Thornburg - but this one did not work out. I was already having second thoughts yesterday morning based on the plunge in mortgage refinancing [Fannie Mae, Toll Brothers, and Mortgage Applications], so now I have to review the situation and see if it is worth holding. I still think the original thesis is sound in terms of catering to "upper income" Americans and avoiding the mass market, but the more Ben cuts, the more the dollar falls, and the more inflation gets stuck in our system, and this will continue to put pressure upward on mortgage rates, so I don't know if my original thesis is still fully intact. Once again shows what a land mine investing in anything with any exposure to the financial world is, despite bulls insistence that all will be fine in 6 months. Much of this is a crisis of confidence which is impossible to model. I continue to be astounded the equity markets ignore the deteriorating situation in credit markets....
Sadly it would of just been more profitable to buy a darn home builder and drink the Kool Aid that housing will rebound by next fall. The herd wins again...
- Thornburg Mortgage Inc., a mortgage lender, said Thursday it has been the subject of margin calls on a portfolio of securities backed by alt-A mortgages.
- Alt-A mortgages are loans given to customers with minor credit problems or who cannot document their income or assets to get a traditional, prime mortgage. Margin calls force borrowers to repay loans or put up more collateral to secure them.
Thornburg said in a regulatory filing it is facing margin calls because the value of the alt-A mortgage-backed securities has plummeted between 10 percent and 15 percent since the end of January. The margin calls come amid "a sudden adverse change in mortgage market conditions in general" that began on Feb. 14, Thornburg said in the filing.
Thornburg said in a filing with the Securities and Exchange Commission its securities face a very low threat of future downgrades, which would reduce their value further, and even less risk of actual losses tied to the securities.
So far, Thornburg has met margin calls totaling more than $300 million, which has reduced its available liquidity to meet future margin calls. If available cash cannot cover future margin calls, the lender said it may have to begin selling assets to raise cash.
In August, Thornburg was forced to sell some of its assets at a steep discount to shore up its capital reserves during a similar period where the value of securities the company held dropped precipitously. The company was able to manage through that period, while dozens of other mortgage lenders shut down.
Long Thornburg Mortgage in fund; no personal position
7 comments:
Sorry for your loss! Tough times out there. I was just wondering if you sold the shares in your personal account since you stated yesterday to have the shares in both the fund and your personal account?
Raphael, purely lucky in personal account - I sold yesterday when it spiked 7% on the Fannie Mae/Freddie Mac news that they would get increased limit. My personal account is a lot more shorter term in terms of style than what I do here. Again, pure luck. I had a small gain, I took it. Better to be lucky than good.
Nice! You never lose taking profits!
Yes, but I seem to pay more attention to this fund than my personal account of late :) Since this is the one people will be looking at to see if they should invest, so I have mixed feelings. Should of just bought the darn Pulte Homes or Ryland and drink Kool Aid!
Tough break on TMA. I've been watching it ever since you recommended it but anything to do with housing and/or mortgages is very risky, IMO. Either are exposed to sudden spikes or drops and as an investor, there is much uncertainty. It amazes me how some of the homebuilders are doing in this market. I think it's all temporary.
-BD
Yes, the whole idea was to have some Ying when the markets Yangs... i.e. stuff that goes up when the market goes on its "housing, financial, retail" recovery binges. Since I have very little exposure to that. Obviously it would of been more profitable to just buy a dumb homebuilder. The whole concept makes me cringe - because it assumes we are going to be rip roaring 2nd half 2008 which goes my whole thesis. I think whats going to happen now is Q3 2008 is going to show GDP up, so this will cause a Q4 2008 rally, (due to rebate checks) and people saying the bottom is in. Then in early 2009 we are going to go into another fall as people will see it's a mirage. This is why this environment is so tricky. But it happens, thankfully its a 2% position but with Foster Wheeler and TMA in 1 week, I took hits on 5% of portfolio combined (I've added to FWLT since of course). So I am not having a happy week :) Especially since coal, fertilizer, and the like are doing nothing. I am unclear what exactly is driving the market up of late - nothing in my watch lists seems to be doing much except a few retailers. Something that I don't watch must be rallying hard.
Anyhow it happens. You have 50 long names, and you're going to take hits. I am just bugged by this one particularly because those folks who are speculating on home builders are doing better than me on this thesis! Grrrr!
hey mark for some reason im struggling to wrap my brain aroudn this statement:
"...but the more Ben cuts, the more the dollar falls, and the more inflation gets stuck in our system, and this will continue to put pressure upward on mortgage rates...."
Could you explain to me why more fed rate cuts would cause mortgage rates to rise??
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