Guess which Santa Fe company was among the many that got screwed by Goldman?

Goldman was one of 22 financial companies that lent money to Thornburg [Mortgage]; it was using about $200 million of a Goldman credit line backed by mortgage loans.

In August 2007, Goldman was the first firm to begin aggressively marking down the value of Thornburg assets used as collateral for the loan. Goldman said the assets were not valuable enough to repay the loan if Thornburg defaulted. Goldman demanded more cash to shore up the account.

…Thornburg officials, however, pushed back on Goldman’s request, questioning the values the firm put on Thornburg’s portfolio. “When we tried to negotiate price, they argued that they were aware of transactions that were not broadly known on the Street,” said a former Thornburg employee briefed on the talks with Goldman. “That was their justification for why they were marking us down as aggressively as they were — that they were aware of things that others were not.”

Even as Goldman pressured Thornburg for cash, a Goldman banker pitched Thornburg to hire the firm to help it raise new funds. Thornburg turned elsewhere.

Seeming to lay some blame for the Santa Fe company’s collapse on Goldman’s machinations, the Times story concludes:

[S]oon after Goldman demanded more funds from Thornburg, analysts began downgrading its shares on news of the collateral calls. Beaten down by the broader mortgage collapse, Thornburg filed for bankruptcy protection on May 1, 2009.

The problem with this story is that Goldman had a point: Thornburg’s products weren’t as valuable as the company wanted investors to believe.

Besides which, granting anonymity to presumably high-level employees at a firm whose executives have a long history of alleged deception—merely so they can trash another firm—is a pretty questionable journalistic decision on the Times’ part.

To be clear, the evidence has piled up that Goldman is indeed the terrible “vampire squid” it’s been branded. But that doesn’t mean the firm’s old clients should get a pass just because they’ve gone broke, and are now willing to trash a former business partner.

While Thornburg—one of Santa Fe’s largest employers—didn’t directly get a bailout, the US government still got stuck with its junk.

Nailing down the details of these transactions isn’t simple; many of the deals leading up to and following the 2008 financial crisis were constructed as confusingly as possible, in part to deter scrutiny by outsiders. For a brief how-to in financial sleuthing, this post shows how to re-report the Indicators item on Thornburg and the Fed.

Following the Bloomberg story, SFR began by looking up the Fed’s March 31 press release, which offers additional details on the assets it acquired during the Bear Stearns deal, using a government-controlled company called Maiden Lane.

The Fed release links to a PDF file labeled “Holdings of Maiden Lane LLC as of January 29, 2010.” This is the document that shows the Fed’s $1 billion in Thornburg Mortgage securities. This being a somewhat secretive deal, the accounting consists of gibberish:

It goes on like that, for 131 pages.

Fortunately, we know what we’re looking for—the $1 billion Thornburg security mentioned in the Bloomberg story. So we can narrow things down quickly by searching the document for the letters “TM,” which are common to Thornburg’s sundry ticker symbols.

To nail it down, run a Google search on the CUSIP numbers in the far right column.Searching CUSIP and 885220KH5 returns a link to a Securities and Exchange Commission filing by a company called Thornburg Mortgage Securities Trust 2006-1. Bingo!

SEC filings are publicly accessible through a database called Edgar. Bookmark it; the database is full of info reported by thousands upon thousands of companies.

Searching Edgar for Thornburg Mortgage Securities Trust get us closer to the target:

Clicking through to the TMST 2006-1 security leads us to a list of all its filings. Let’s look at the initial prospectus, filed Jan. 20, 2006, which explains just what was for sale—and what the Fed now owns:

For a necessary crash course in deciphering the mortgage-backed-securit-ese that follows in the SEC filing, watch this video by the staff of Marketplace and read this Wikipedia article. (Don’t neglect ProPublica’s bailout guide for up-to-date news and research.)

This snippet, anyway, is easy enough to understand:

This shows that half of the mortgages in this Thornburg security were given to borrowers who provided less than complete documentation of their income and assets, suggesting they perhaps shouldn’t have qualified for a loan in the first place, and may be at risk of default. Thornburg Mortgage executives bragged that they offered loans to only the most creditworthy customers; such standards evidently didn’t apply to the securities Thornburg sold to investors.

Certainly, other companies were even less scrupulous. Bloomberg reports that 94 percent of the mortgages in another Fed-held security had “limited documentation.” Nearly 10 percent of the homes in that security have entered foreclosure. Foreclosure rates in the Thornburg security are not that high—but, as the prospectus shows, interest rates on most of its mortgages aren’t set to increase for several more years.

Cross-posted at Muckraker’s Guide.

Select Portfolio Servicing Inc., a Salt Lake City mortgage-servicing business owned by Credit Suisse Group (CS), won the auction for Thornburg’s portfolio with a winning bid of about $95 million, according to Joel Sher, the failed lender’s Chapter 11 trustee.

If this summary of the Better Business Bureau file on Select is accurate, the sale could be bad news for homeowners who took out loans with Thornburg, which before its bankruptcy last year had a pretty good reputation for customer service:

“Based on BBB files, this company has unsatisfactory record with the BBB due to unanswered and unresolved complaints.

“The BBB processed a total of 136 complaints about this company in the last 36 months, our standard reporting period. Of the total of 136 complaints closed in 36 months, 59 were closed in the last year.”

NEW YORK, Jan 4 (Reuters) – Bankrupt U.S. mortgage lender Thornburg Mortgage Inc (THMRQ.PK) is seeing “wide interest” in the auction for its $11 billion mortgage servicing portfolio…

Dozens of traditional mortgage banks, banks, hedge funds, private equity firms, and special servicers have expressed interest in the portfolio.

Of that group, more than 20 are likely to meet qualifications to bid on the portfolio this week…

The portfolio consists of 16,998 loans, and according to [the firm hired to manage the sell-off], is expected to be more attractive to potential bidders because it is seen as a “private investor” portfolio with lower risk than similar offerings from agencies like Fannie Mae (FNM.N), Freddie Mac (FRE.N) and Ginnie Mae that have dominated the servicing portfolio market over the past year.

tilted enormously in favor of institutional lenders who exist in a world of morality-free contracts, and who conspire to lay the world’s largest-ever guilt trip on any borrower who might think about joining them in that world. It’s asymmetrical, it’s unfair, and it’s about time that homeowners started being informed that a ding to their credit score is not the end of the world; that no one would expect a capitalist company to behave in the way that individuals are being told to behave; and that their options are in fact broader than they might believe.

In case you missed the message, here, one of the nation’s top financial bloggers, employed by one of the world’s top news organizations, is basically calling for open revolt on mortgage lenders. Strange times.

Court documents show that in October, the company, now known as TMST, had $24 million in the bank (or rather, banks—foremost among them being New Mexico Bank & Trust). That month alone, TMST made a gross profit of $2.2 million from servicing mortgages—and has made $19.9 million since filing for bankruptcy in May. After legal fees and “general and administrative” costs, TMST has netted $816,773 since the bankruptcy. Of course, all that belongs to its creditors.

The case is also shedding light on what kind of tax burden one of Santa Fe’s largest private employers faces, or rather, doesn’t.

Since filing for bankruptcy, the company has paid a $107,850 in combined state and federal taxes—or 13 percent of its net profit in that time. For comparison’s sake, check out the federal income tax brackets. A married couple making the median income in Santa Fe is going to pay 15 percent. Such a couple is likely to pay property taxes, as well—unlike TMST, which pays no property taxes on its corporate HQ, thanks to a clever deal with the city of Santa Fe.

Click on the image below for a breakdown of TMST’s tax payments.

Note that TMST, which laid off 130 workers in April and more since, has paid all of $973 in unemployment taxes in the months since its bankruptcy. Two years ago, Gov. Bill Richardson—who has received many thousands in campaign contributions from company founder Garrett Thornburg over the years—signed into law a bill that cut employer unemployment tax payments to the lowest rate allowed by federal law, saving corporations an estimated $26 million in 2008.

More on Thornburg after the cut.

Again, props to “Santa Fe Journal” editor Mark Oswald for keeping tabs on the Thornburg story, which Santa Fe’s other daily paper seems unwilling or unable to do. He’s got a story in today’s paper (which you can’t read online without a subscription) about those laptops and documents removed from company property by ex-CEO Larry Goldstone and ex-CFO Clay Simmons before they got the ax.

From Oswald’s story:

A proposed stipulated order filed last week says Goldstone and Simmons now have agreed to deliver the laptops by Thursday to Thornburg Mortgage’s Santa Fe offices on North Ridgetop Road and to not “alter or destroy any data or information” on the computers.

Goldstone and Simmons also will return the boxes of records, but with the stipulation that their attorney will keep documents that they contend “are protected from disclosure pursuant to the attorney-client, work product or other applicable privileges.”

Too late?

The interview, which KSFR’s Bill Dupuy has dredged from the archives, raises some interesting questions.

First: If Goldstone had already announced his intentions on the radio, why was Thornburg Mortgage’s then-spokeswoman so cagey when SFR reported on the new company’s existence later in the summer? One likely explanation: Because, as the Justice Department has charged, the new company’s employees were being paid with money that belonged to the bankrupt company’s creditors.

The Journal North managed to raise Goldstone on the phone for their front-page story today, but he didn’t say much. Over at the Santa Fe Review, George Johnson uses personal experience to explain the nut of this story: “the $8,000 I invested in the company is now down to $6, while Mr. Goldstone is still receiving $188,000 a month from the bankrupt company.”

And from the paper whose business writer quoted the company’s founder in 1995, “Thornburg makes a compelling argument that a crisis large enough to shake the mutual fund industry to its core is not very likely”; the paper that editorialized in 2004, “The community should be glad [Thornburg] didn’t grow weary of NIMBYism and forsake Santa Fe for Santa Barbara or some other la-di-dah address”; and the paper that declared Thornburg Mortgage “back in the game” just before it went bust?

Crickets.

Updated Sept. 18, 7 am: There we go. How does Bob Quick spell FU? “Their resignations…first reported by Reuters.”

Mr. Goldstone’s and Mr. Simmons’ resignations arose as a result of a disagreement between them and the Company with respect to policies concerning the allocation and use of resources, including employees, between the Company and a new company founded by Messrs. Goldstone and Simmons, SAF Financial, Inc. The Company’s Board of Directors (the “Board”) has determined that the policies implemented by Messrs. Goldstone and Simmons were not appropriate, and the Board has taken steps to abolish those policies, including implementing management changes.

See this post for more on the implications of those “disagreements.”

Update 5:40 pm: What about Kalangis? SFR just called him to find out why he left the board, and he hung up as soon as we identified ourselves.

Does it still count as “disclosure” if the news has already come out in the press? Anyway, maybe the New Mexican will cover this story, now that it’s been put in handy press release form. Read the full release after the jump.

Form 8-K for TMST, INC.

16-Sep-2009

Change in Directors or Principal Officers, Regulation FD Disclosure

Item 5.02. Departure of Directors and Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
(b) Ike Kalangis resigned as a director of TMST, Inc., a Maryland corporation, formerly known as Thornburg Mortgage, Inc. (the “Company”), effective September 10, 2009.

Larry A. Goldstone, the Company’s President and Chief Executive Officer, the Company’s principal executive officer, and a director of the Company, resigned from each of his positions as an officer and director of the Company, effective September 15, 2009.

Clarence G. Simmons, III, the Company’s Senior Executive Vice President, Chief Financial Officer and Secretary, and the Company’s principal financial officer and principal accounting officer, resigned from each of his positions as an officer of the Company, effective September 15, 2009.

Mr. Goldstone’s and Mr. Simmons’ resignations arose as a result of a disagreement between them and the Company with respect to policies concerning the allocation and use of resources, including employees, between the Company and a new company founded by Messrs. Goldstone and Simmons, SAF Financial, Inc. The Company’s Board of Directors (the “Board”) has determined that the policies implemented by Messrs. Goldstone and Simmons were not appropriate, and the Board has taken steps to abolish those policies, including implementing management changes.

(c) The Board appointed Anne-Drue M. Anderson as President and Treasurer of the Company, effective September 15, 2009. Ms. Anderson will serve as the principal executive officer, principal financial officer and principal accounting officer of the Company. Ms. Anderson will be compensated for these services in an amount to be determined and approved by the Board. The Board’s current expectation is that her commitment will exceed 40 hours per week during this initial transition period, with the expectation that Ms. Anderson’s time commitment will be reduced as the wind down of the Company’s operations continue. Ms. Anderson will remain a director of the Company, but will no longer be entitled to any compensation as a non-employee director.

Ms. Anderson, age 48, has been a director of the Company since December 2003 and a member of the audit committee of the Board since 2004. During 2000 and 2001, Ms. Anderson served as President of Neighborhood Housing Services of America, a non-profit housing-related firm in Oakland, California. Prior to that, she was an Executive Vice President and Director of Residential Lending for H.F. Ahmanson & Company and Home Savings of America. She joined Home Savings as Treasurer in 1993 and in 1995 became the first female Executive Vice President in the 109-year history of the company. During her tenure at Home Savings, Ms. Anderson managed numerous areas, in addition to Residential Lending, including Secondary Marketing, Funds Management, Capital Markets, Online Banking, Corporate Marketing, Brand Management and Advertising. She currently serves as a director of Enterprise Development International, a non-profit micro lender that assists individuals in extreme poverty in numerous third world countries to create small businesses through subsidized lending and business training. Ms. Anderson is a Phi Beta Kappa graduate of Agnes Scott College, B.A., and received an M.B.A. from the University of Texas at Austin.

Item 7.01. Regulation FD Disclosure.
On September 16, 2009, the United States Trustee for Region Four, including the District of Maryland, filed a motion in the United States Bankruptcy Court for the District of Maryland seeking the appointment of a chapter 11 trustee or, in the alternative, an examiner, pursuant to �1104 of the United States Bankruptcy Code.

Now say one of the largest corporate bankruptcies in US history occurs on your turf. Then imagine that, in the course of the bankruptcy case, federal investigators determine the company’s management—which includes some of your city’s wealthiest and most prominent citizens—has “improperly divert[ed]” company resources and “cannot now be entrusted” to act transparently and honestly.

Unfortunately, your business reporter has been cut to part-time. But you still think this might be story worth mentioning, right? Right?

Not if you’re the Santa Fe New Mexican. Or the Albuquerque Journal.

This morning a US Justice Department official asked federal bankruptcy judge to take action against Thornburg Mortgage over claims of misappropriated funds discussed in today’s SFR. The filing, by Assistant US Trustee Mark A Neal, basically says Thornburg management should be removed by the court because they used creditors’ money to fund startup costs for an entirely new company. (Some management has already departed, as we reported yesterday.)

A story last week by Reuters—the international news wire service, which the dailies presumably keep tabs on—hinted something like this might be coming. And the story of the new company won’t be news to SFR readers. But shouldn’t the dailies be on this? A federal official is basically saying the CEO of what was one of Santa Fe’s largest private employers—a company local politicians both praised and rewarded—is untrustworthy and may have spent money that wasn’t his.

“Not only is candor to the Court and [creditors] lacking in this case, but [Thornburg Mortgage] violated chapter 11’s basic prohibition on the use of estate assets,” Neal writes in his filing. “Furthermore, the use of [Thornburg Mortgage]’s employees by its most senior officers to staff start-up aspects of a new and undisclosed company is, at its very best, strong evidence of incompetence and/or gross mismanagement.”

Thornburg employees paid to work for the new company, SAF Financial, “are likely to instead prioritize their work in favor of an emerging entity, owned by insider management, that may offer them future employment. The creation of this…conflict-of-interest is the doing of current management, which cannot now be entrusted to perform their fiduciary obligations,” Neal writes.

Click here to download the 14-page filing.

SFR has tried to get a message to company founder Garrett Thornburg, who—unlike Thornburg Mortgage CEO Larry Goldstone and CFO Clarence Simmons—is not named in Neal’s filing. (That’s Thornburg, pictured.) It’s probably past time for him to address these issues.

We’ll let you know if and when we get a response. Neal did not immediately return a request for comment.

Thornburg Mortgage is not commenting on anything at all.

Court filings say the new company was founded by Thornburg Mortgage CEO Larry Goldstone and CFO Clarence Simmons. Sources tell SFR Goldstone (pictured) and several other fomer Thornburg Mortgage employees left the company last week, and that an emergency board meeting has been scheduled for this week.

In July, SFR reported how high-ups at Thornburg Mortgage had begun quietly planning for a new venture as their company entered bankruptcy.

Creditors’ co-counsel Alan Grochal tells SFR the investigation into the new company is a “detour” from the bankruptcy proceedings, but could have serious consequences.

“I’ve seen these things where it turns out to be much ado about nothing. I’ve seen others where there was a whole other scam,” Grochal says. “If it is established that corporate assets were being used and expended for a purpose that had nothing to do with helping the debtor company operate, there could be some criminal repercussions.”

An email to Suzanne O’Learly Lopez, former spokeswoman Thornburg Mortgage, was referred to Kerri Segell, who would not comment. Someone responding to Lopez’ email said she is no longer with the company.

What follows are notes from SFR’s bizarre conversation with Segell.

SFR: You are the spokeswoman now?
Segell: Not at all. Just as time goes by, there’s fewer and fewer people here. There’s only a couple of us who are answering at the main phone. That’s why [Suzanne] gave out my name and number. As I understand it, there’s no comment to be made.

On what?
On anything.

Is Larry Goldstone still with the company?
Again, no comment.

Do you have a title?
Mmmm—I would prefer not to give you that information. I am employed by TMST [what used to be Thornburg Mortgage].

Is Suzanne still there, working for another Thornburg entity?
No, no.

So there’s no one who can answer questions about anything?
That is my understanding.

Is that because the Reuters story implied there are potential criminal liabilities here?
I want to stay on the phone with you, but…

I’m sorry they hung out someone to answer for this who can’t even give out her title.
It’s not a good situation.

Today the Santa Fe New Mexican’s lead business story was a puff piece based on an interview with the managing director at the separate money management company founded by Garrett Thornburg, headlined, “Looking up again.” SFR profiled Thornburg earlier this year.

Perhaps because, as the CEO of defunct Thornburg Mortgage, Inc., Larry Goldstone still draws a pretty good salary. The company paid him $188,274 in wages in July, according to bankruptcy documents filed Aug. 20 (Here’s the PDF).

This screengrab shows compensation for that period for other Thornburg Mortgage principals, including Chief Financial Officer Clarence Simmons III and six directors, whose backgrounds SFR described in a previous story on Thornburg:

It’s worth wondering how the 130 people Thornburg laid off last April feel about that level of compensation. Indeed, that’s why we have a comments section.