Another Possible Mortgage Bankruptcy

Published by julia | Filed under Buyer / Seller Tips, Market Trends, Miscellaneous, Real Estate

Thornburg Mortgage Inc. a large and troubled provider of jumbo mortgage loans, said it may file for Chapter 11 bankruptcy protection.

The Santa Fe, New Mexico-based company has struggled with problems since approximately the summer of 2007, when the value of mortgages on its balance sheet began to fall. Thornburg later suffered a series of calls from its own creditors.

A bankruptcy filing would make Thornburg one of the largest U.S. mortgage providers to seek protection from creditors since the housing slump began, joining such companies as Washington Mutual Inc. and IndyMac Bancorp Inc.

Thornburg has specialized in funding mortgages larger than $417,000 to borrowers with good credit, but soon ran short of capital as investors stopped buying its loans.

In a recent statement, Thornburg said it is evaluating alternatives to restructure its financing agreements, make deferred payments, and meet obligations to bondholders.

The company said several of its own lenders have agreed not to exercise their rights under various financing agreements through March 31, 2009. It also said it has hired the law firm Kirkland & Ellis LLP and the firm Houlihan Lokey Howard & Zukin Capital Inc. as advisers.

Thornburg has stayed alive mainly through a series of agreements to restructure or otherwise delay paying its debts. Last March it arranged a $1.35 billion bailout from the distressed debt investor MatlinPatterson Global Advisors LLC and other investors to stay out of bankruptcy.

David Matlin and Mark Patterson, both of MatlinPatterson, resigned from Thornburg’s board of directors on March 12, citing potential conflicts of interest. Coincidence? I think not.

In a November regulatory filing, Thornburg said it lost $2.75 billion, or $85.71 per share, in the first nine months of 2008. It ended September with $25.4 billion of adjustable-rate mortgage assets on its balance sheet, and liabilities that included $20.4 billion of mortgage debt.