Filings Heard ‘Round the Industry

With Accredited Home Lenders and Thornburg Mortgage both having filed for bankruptcy Friday, the scope of the industry’s problems has become more apparent than ever. Accredited once ranked as one of the largest subprime lenders and Thornburg specialized in high-balance, ultra-prime jumbo loans. The filings are further indication that the recession inhabits every corner of the lending industry. But neither comes as a major shock. Lone Star Funds purchased Accredited after acquiring Bear Stearns’ residential mortgage arm when the company broke apart last year. The purchases sparked questions at the time over Accredited’s future and Lone Star’s plans to integrate across two platforms with similar operations. A memo sent by Bear Res to its employees announcing the sale to Lone Star noted that the private equity firm intended to set up a separate entity, LSF5 Mortgage Operations, which would “operate as an independent origination and servicing business for its own account.” Lone Star indicated in the memo that it would only temporarily use Accredited’s existing channels to fund and service mortgages, until the permits were complete for LSF5. The future of Accredited in the face of the acquisition seems a moot point, now the company has filed for Chapter 11 bankruptcy protection. Thornburg warned in April of the bankruptcy, as it struggled under the pressure of deteriorating market conditions and high operating leverage. The company found itself in violation of numerous covenants on various credit facilities with the likes of UBS AG (UBS) and JP Morgan Chase (JPM), and said that its creditors had agreed to forbear demanding payment under deficiency claims, but said that its various creditors would begin to seize collateral ahead of any bankruptcy filing by the company. Write to Diana Golobay at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

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