Santa Fe, N.M.-based Thornburg Mortgage Asset Corp., one of the market's oldest and largest real estate investment trusts, is preparing to launch the second of two unique mortgage-backed securities swap deals this month backed by hybrid adjustable-rate mortgage loans securitized and packaged by underwriters Donaldson, Lufkin & Jenrette.

The private placement transaction, slated to hit the market in late July, is for $103 million and will be backed by a pool of seasoned six- and seven-year-old ARM collateral, said Deborah Burns, Thornburg's vice president of securitization.

Though this midsummer deal was originally intended to be the larger of two separate MBS transactions undertaken by the company, some of the loans destined for the summer transaction were rolled into a May deal, Burns added, thus making the July deal much smaller than expected.

"The current deal is issued off of collateral interest purchased by DLJ, and DLJ will issue us a new security, entitled DLJ/Mortgage Asset Corporation 1999-E," Burns said. "The transaction will be subject to a clean-up call of the underlying securities, meaning that outstanding collateral from previous deals are being packaged into a security off of DLJ's shelf, which we will then buy."

In the May transaction, Thornburg securitized $272 million worth of hybrid 5/1 triple-A-rated ARM loans indexed to Libor and Treasury securities. These mortgage loans were predominately jumbo mortgages similar to the mortgage REIT's December 1998 transaction, the $1.2 billion TMA Mortgage Funding Trust I.

The current offering, however, is based on the collateral backing six securities from previous deals that are being called by the master servicer, and the collateral is being sold.

Thornburg would like to buy the outstanding collateral from the collapsed securities, but the company would like to own it in securitized form, Burns said.

Rather than buy the loans itself, it is more efficient for Thornburg to enter into an agreement with DLJ, which packages the loans into a new security and then sells it to the REIT.

"Loans from previous deals have amortized down to the point where the master servicer gets the right to call the deal and sell the collateral," Burns added. "Basically, the collateral has been sold due to the fact that the master servicer is canceling out the deal, because it has gotten so small that it is not worth administrating anymore."

According to Burns, the six deals with these loans in them paid down probably 90% of the value of each of the securities, but there were still some loans outstanding.

The master servicer, PNC Mortgage Securities Corporation, called the existing six deals and put the remaining outside loans up for sale. DLJ bought the loans from PNC and will issue Thornburg a security collateralized by the remaining loans.

Burns considers this type of swap deal to be an alternative to capital markets financings in that it enables Thornburg to lower its financing costs by financing the securities issued off PNC's shelf in the reverse repurchase market. - AT

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