Thornburg can't meet $610M in margin calls

updated 3:56 p.m. ET March 7, 2008

SANTA FE, N.M. - Thornburg Mortgage Inc. said Friday it does not have enough cash to cover current margin calls and it will restate past financial results to account for a decline in the value of its mortgage securities.

Thornburg, a jumbo mortgage lender and real estate investment trust, said it has $610 million outstanding in margin calls, which “significantly exceeded its available liquidity.” It has already met $1.17 billion in margin calls since the beginning of the year.

Margin calls force borrowers to repay loans or put up more collateral to secure them. If a borrower is unable to meet the calls, the creditor typically can seize and liquidate assets used as collateral against the financing agreements.

Earlier in the week, Thornburg said it received a notice of default from JPMorgan Chase & Co. on a $28 million margin call. That call sparked a series of cross-defaults as well.

As delinquencies and defaults across certain types of mortgages have risen, investors have shied away from purchasing nearly all types of loans in the secondary market.

That lack of a market to sell debt backed by mortgages has caused prices to plummet. As those prices fell, companies like Thornburg have been forced to reduce the value of their holdings, regardless of actual performance. Those declining prices also have lenders making margin calls.

“The mortgage financing market’s complete inability to differentiate and appropriately value superior AAA-/AA-rated mortgage securities from all other mortgage assets is as unprecedented as it is frustrating,” Thornburg’s president and chief executive, Larry Goldstone, said in a statement.

Thornburg said it would restate past earnings to incorporate a $427.8 million write-down on mortgage-backed securities it held in a portfolio as of Dec. 31. The unrealized loss should not have an impact on Thornburg’s book value as of the end of 2007, Thornburg said in a statement.

Since Thornburg first disclosed it was facing margin calls at the beginning of the week, shares have tumbled 86 percent.

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