Another lender on the ropes

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How bad is the Jumbo mortgage squeeze? So bad that Jumbo lender Thornburg Mortgage is fighting for survival tonight.

Backstory: Earlier this month, Jim Cramer of CNBC fame said that Thornburg could survive even the worst housing downturn because of its profile: it concentrates on Jumbo mortgages, lending money to wealthy people who like mortgages for the tax advantages.

Update: Thornburg took a standing eight count today in the market, losing 46% of its value before its shares were halted. Analysts couldn’t downgrade the stock fast enough after the lender said it won’t accept new rate lock requests for four days. The company blamed ‘the present unprecedented and irrational sentiment in the secondary mortgage market, which has generated conditions of illiquidity throughout the industry.’

The Street.com: ’...Five brokerage firms downgraded the stock, saying the company may be forced to sell assets to meet margin calls. One analyst said earlier Tuesday that news of a halt in rate locks ‘could be the beginning of large liquidity issues for the company.’

After the market closed today, Thornburg put out a statement saying it has postponed its second-quarter dividend and that its book value is $14.28 per share (the stock was halted today at $7.65).

Our take: Perhaps the secondary mortgage market is irrational at the moment -- it’s hard to say for sure, because we don’t know how bad things will get. But we do know that the secondary mortgage market was wildly irrational in recent years -- that’s why we’re in the mess we’re in at the moment. Oddly, no one complained about the market’s irrationality on the way up.

Comments? Thoughts? Insights?