In other similarly alarming mortgage industry news, Thornburg Mortgage Inc. said in a filing with the SEC that its survival is in doubt. The company has also been subpoenaed by the SEC over the restatement of its 2007 results. Thornburg stated in the securities filing that "recent adverse developments in the mortgage finance and credit markets has adversely affected our business, our liquidity and our stock price" raising doubts over the company's ability to continue as an ongoing concern. Given that the company was forced into a massive restructuring that caused it to narrowly avert bankruptcy in April, this news is somewhat surprising. The company raised $1.35 billion two months ago, restructured its obligations, got a stay of execution from its repo lenders and completely diluted the shareholders. The fact that they are again suffering from liquidity problems is a testament to how poorly their assets continue to perform. It is also an ominous sign for the rest of the market.
Thursday, June 19, 2008
Mortgage Insurer Triad Guaranty Finished, Alt-A Mortgage Lender Thornburg On The Brink Again
Triad Guaranty, the mortgage insurer, has announced that its negotiations with Lightyear Capital LLC to form a new mortgage insurance company have been terminated. The company will cease writing new business, lay off employees, and run-off its existing book. Formerly a Freddie Mac approved mortgage insurer, Triad was suspended from doing new business with Freddie in May because it no longer met mortgage insurance eligibility requirements. Triad appealed the decision, but Freddie has denied the appeal.
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3 comments:
A question I always have when I hear about financial firms "raising equity" is, who are these equity providers? I always hear about sovereign wealth funds and the likes being the ones investing. Is the deal really that sweet for them? It would be interesting to see just how well the portfolio of these sovereign wealth funds been doing since the financial meltdown began. Being a long time reader of Mish's blog, the comments I most often read is the devaluing of the US dollar. Perhaps trading soon-to-be-worthless USD for shares of corporations is a smart move after all, despite how much the paper loss is?
Even within the US, there are trillions (3.5-ish?) of dollars in money market funds, so that is the "cash on the sidelines" that gives some support to equity markets. And, yes, you can certainly surmise that a weak dollar scenario would also make US equities seem like a better asset than cash. Still, though, I'm surprised by how readily investors have subscribed to these new, dilutive issuances. How many times in a row are people willing to assume risk, get scorched by it, and come back for more?
The current bottom feeding phenomenon is interesting indeed. It's funny that whenever investors have been questioned recently after they have taken a massive beating immediately following a investment, they reply with: "we're not after short term gains, we're in this for the long haul." Problem with the long haul is if any or these companies go bust in the near term. Thornburg Mortgage just got bailed out two months ago by a distressed debt fund, and they still may not make it. It speaks to how rapidly their assets have deteriorated since then.. In any event, watching all of this unfold is fascinating.
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