Pipeline

By Colter, Allison Bisbey | American Banker, June 26, 2008 | Go to article overview

Pipeline


Colter, Allison Bisbey, American Banker


Subprime, And Beyond

For those who have lost track, here is a roundup of the past weeks turmoil in the mortgage and credit markets.

The Federal Bureau of Investigation and the Department of Justice went public with their mortgage fraud investigation, announcing the arrest of hundreds of mortgage brokers, real estate agents, and other industry officials across the country.

The Justice Department said last week that more than 400 people have been charged since Operation Malicious Mortgage began March 1; nearly 300 of them have been arrested, including 60 picked up in a coordinated sweep June 18. The FBI estimates the fraud cost consumers at $1 billion.

The Securities and Exchange Commission charged two former Bear Stearns Cos. hedge fund managers, Ralph Cioffi and Matthew Tannin, with misleading investors about the state of two funds and their exposure to mortgage-backed securities before the funds collapsed in June of last year.

Thornburg Mortgage Inc. said its survival remains in doubt, despite a fund-raising effort that helped it avoid bankruptcy two months ago.

The Santa Fe, N.M., jumbo lender and real estate investment trust also said that it received subpoenas related to an SEC investigation into its restatement of last years financial results. Thornburg said it is cooperating with the regulator.

In April, Thornburg raised $1.35 billion from a group of investors led by the private-equity firm MatlinPatterson Global Advisers LLC, using the funds to repay creditors. This month common shareholders approved a plan that effectively would give the new investors control of the REIT.

But Thornburg still needs to buy back 90% of its outstanding preferred shares. It has until Monday to complete the tender offer, but it expects to seek a 90-day extension.

Mortgage Insurers

Triad Guaranty Inc. said that it ended talks with Lightyear Capital LLC to form a mortgage insurance company, and that Freddie Mac denied an appeal of its main subsidiarys suspension as an approved insurer.

Fannie Mae said it also suspended the Triad unit as an approved insurer. Triad is exploring alternatives, but it is not optimistic. The subsidiary will stop issuing insurance commitments July 15, and it will start running off its book of business in the coming weeks.

MGIC Investment Corp., PMI Group Inc. and Radian Group Inc. fared much better; Freddie said it had reviewed the companies respective plans to restore their triple-A ratings and would continue to treat them as Type I mortgage insurers.

Bond Insurers

Moodys Investors Service Inc.s sharp downgrades last week of MBIA Inc. and Ambac Financial Group, the two largest bond insurers, threaten their plans to resume insuring municipal bonds.

Standard & Poors Corp. stripped both companies of their triple-A ratings this month. …

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