I needed to comment on this tonight because its just another nail in the coffin for housing as the time bomb is about to explode. TMA fell 51% today down to $4.32/share as they announced they may not be able to meet margin requirements required by their lenders.
As you can see by this article Citi thinks that they might not find the capital to cover the margin calls and go BK. I find this ironic because I am not even sure Citi can avoid Bankruptcy but that's beside the point.
This is an important development because Thornburg was supposed to be the BEST run mortgage outfit in the country. They avoided all subprime loans. They focused almost solely on "jumbo" loans(over $417,000). If you were a Kennedy or a Bill Gates or a hedge fund billionaire then this is where you went to get your loan. It was the Rolls Royce of mortgage companies. To fighting for their lives shows you how bad things are out there.
The reason Thornburg is having so many problems is they got involved in some no doc Alt-A CMO's. The credit markets are so scared of anything involved with housing they don't want to touch any CDO or CMO because FEAR and as a result Thornburg is stuck with these CMO's and can't sell them. These CMO's are most likely decent securitizations because Thornburg had such tight lending standards and dealt with such an affluent customer base. The credit market must think otherwise. This is consistent with my worst case scenario thesis that we will now see prime and Alt-A loans start to fail at a much higher rate.
Everyone knows the credit markets are frozen and not moving any paper but the fact that Thornburg is being hung out there to die is something to take notice of. If their CMO's can't sell then what about WAMU's or Countrywides paper? If Thornburg goes under then get ready to see the others follow or be forced to merge.
Bank of America's(BAC) purchase of Countrywide is not a move BAC wants to make IMO. Its a move they have to make. Expect some other larger outfits like WAMU to be merged in as well. Why? Because its in both parties best interest. A bank run on Countrywide could result in a full panic and force bank runs everywhere else. Its in the banks own interests to buy the weak and work with the gov't on absorbing the debt without going under themselves. These mergers were done many times in 1990/91. Citibank was insolvent themselves before being merged with other banks which allowed them to avoid bankruptcy.
The difference here is the lending was 10 times worse in the last 5 years then it ever was in 1990/91. There were no subprime, no doc, or 100% financing loans in 1990 which were common in the past two years.
So the big question that remains is did the reckless/ponzi like lending take the banks to the point of where they get time bombed and go under?? Time will tell and I am afraid of what the answer is.
There was another big development in the market today around freddy/fanny and appraisers that I will discuss tomorrow.