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Thornburg Unloads $20 Billion MBS

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In a move to shore up liquidity, Thornburg Mortgage Inc. unloaded more than $20 billion in mortgage-backed securities — taking a nearly $1 billion charge in the process.

The Santa Fe, N.M.-based company announced today the “rapid” sale of $20.5 billion of primarily AAA-rated MBS. The sale left Thornburg with a mortgage asset portfolio of about $36.4 billion at Aug. 17 and reduced reverse repurchase and commercial paper borrowings to approximately $12.4 billion.

The primarily jumbo lender said it made the moves over the past six days in response to liquidity needs resulting from a rapid decline in securities prices and a simultaneous decline in hedging instruments.

Thornburg reported it will take a $930 million third quarter capital loss charge related to the sale of which $700 million was already reported as an accumulated comprehensive loss on the June 30 balance sheet statement. It will also realize a $40 million gain from the termination of hedging instruments.

Explaining that the current crisis is worse than prior disruptions to the mortgage market, Thornburg President and Chief Executive Officer Larry Goldstone said, “We have now greatly reduced our exposure to continued widening of the spread between our mortgage assets and our hedging instruments and the associated margin calls against our collateralized borrowings and hedging instruments. As a result, we believe we have nearly stabilized our liquidity situation.”

The real estate investment trust, which noted the sale of loans has left it unable to offer earnings or dividend guidance beyond Sept. 1, said it sold its lowest yielding assets and expects a third quarter operating profit. The company expects to benefit from a 125-basis-point improvement in the spread between it mortgage yields over its cost to fund those loans.

Delinquency of at least 60 days went from 0.21 percent as of June 30 to 0.23 percent on July 31, Thornburg indicated — adding the figure was just one-tenth of the national average at the end of the first quarter.

Thornburg, which last week told MortgageDaily.com it hoped to reopen its lock desk today, said in today’s announcement that it now hopes to start locking within two weeks and anticipates a gradual resumption of funding.

“The actions of the past week have been regrettable and disappointing for management and our shareholders,” Goldstone said. “Unfortunately, the mortgage market continues to be in a state of rapid change so we will continue to evaluate the market and determine the best course of action for the company and our shareholders to further solidify our financing situation and mitigate the impact of additional margin calls in the event they should occur.”

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