Countrywide was to subprime lending what Thornburg Mortgage was to jumbo-prime.

Now, both are out of business.

Thornburg said it expects to file for Chapter 11 bankruptcy protection, ending a nearly 2-year struggle to fend off creditors and survive the credit crunch. The company, once the country's second largest independent mortgage lender, specialized in making jumbo loans to borrowers perceived to have little credit risk. Ever since the market for its mortgage-backed securities evaporated in the summer of 2007, however, Thornurg has been under siege. 

In what now seems like ancient history, Countrywide nearly collapsed as its short-term commercial papers seized up, and investors fled Thornburg in droves. The Federal Reserve stepped in and shocked the market back to life, but the revival was short-lived. Enough damage had been done that any financial institution holding even highly rated securities backed by residential mortgages had a target on its back.

Thornburg's stock was delisted last December as a series of last-ditch efforts by CEO Larry Goldstone failed to save the company. With investors buying nothing by government-backed Fannie Mae (FNM) and Freddie Mac (FRE) mortgages, Thornburg’s bread and butter -- jumbo loans -- became virtually worthless.

Although Thornburg’s demise was a foregone conclusion months ago, the fate of a company many once believed immune illustrates how far we’ve come from what began as a “subprime” problem.

High-end real estate is now fully engaged in the nation’s housing slump. Prime loans are souring faster than subprime ones as job losses spread up the socioeconomic ladder. Manhattan’s real-estate market is in the news again, as sales continue to plunge and prices follow suit.

Here in the San Francisco Bay Area, where expensive homes dominate many markets, high-end buying activity has slowed to a trickle. The chart below, from Cirios Real Estate shows purchases over $1,000,000 since the broader housing market peaked in 2005. Even without the statistical wizardry of seasonal adjusting the data, the trend is clear: America’s wealthy aren't buying.


click to enlarge

Sales figures don't look much better in the first quarter of this year, even though broad sales activity is up month-over-month. The bifurcation of the real-estate market continues, as troubles in the high end are picking up the slack while low-end markets grope for a bottom.

Foreclosures are even happening in some of the country's wealthiest communities. In many of these markets, denial reigns as owners clong to the belief that the slump is temporary, their paper losses transitory. But as deleveraging continues, asset prices continue to fall, and forced liquidations creep towards the very wealthy, reality is slowly setting in.



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