Thornburg Earnings Takes Big MBS Hit

Thornburg Mortgage Inc., Santa Fe, N.M., has reported that earnings of $412.3 million for the second quarter were adjusted dramatically to $22.7 million as a result of a $209.6 million loss on the company's mortgage-backed securities portfolio, among other items. The adjustment was partially offset by a $14.3 million net gain on the sale of adjustable-rate mortgage assets and real estate owned. (Thornburg reported net income of $83.4 million a year earlier.) During a conference call, president and chief executive Larry Goldstone said that since the company entered into an override agreement, rating agencies have downgraded many of its mortgage securities. He said Thornburg has seen downgrades by Fitch Ratings of $36.4 million (carrying value) of MBS through June 30, and $1.1 billion between June 30 and Aug. 22 on the MBS collateralizing reverse repurchase agreements. "These downgraded securities still have ample credit support, and we feel more than adequately protected," Mr. Goldstone said. The company has used amounts in the liquidity fund to pay margin calls totaling $219.0 and has identified additional downgrades in its portfolio that would result in similar margin calls of $25.9 million, he said. "Anything S&P or Moody's does going forward will be a secondary review, which may come out with higher ratings," Mr. Goldstone said. "We hope we've seen the lion's share of it, but we won't know until everybody's done."