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Thornburg Survival in Doubt, Gets SEC Subpoenas

Reuters
Wednesday, 18 Jun 2008 | 8:22 AM ET

Thornburg Mortgage, the jumbo mortgage lender that lost $3.31 billion in the first quarter, said on Wednesday it has received subpoenas from U.S. securities regulators and its survival remains in doubt.

The disclosures reflect further problems for the Santa Fe, New Mexico-based lender, which was on the brink of bankruptcy in March before raising $1.35 billion of capital.

In its delayed quarterly report filed with the Securities and Exchange Commission, Thornburg said it is complying with SEC subpoenas for documents.

It said the subpoenas, issued on April 24 and May 23, relate to a previously disclosed probe into Thornburg's restatement of 2007 financial results, demands for more collateral by its lenders, its accounting for mortgage-backed securities, and various disclosures.

SEC spokesman John Nester declined to comment.

Thornburg also said it has been "significantly and negatively impacted" by worsening mortgage market conditions, including falling home prices, rising borrower defaults, credit rating agency downgrades of mortgage securities, and illiquidity.

It said uncertainty about liquidity, financing and the outcome of a planned tender offer for preferred stock "continue to raise substantial doubt about the company's ability to continue as a going concern for the foreseeable future." The lender also said it is defending against class-action litigation accusing it of making false and misleading statements about its financial health, inflating its stock price.

Thornburg specializes in mortgages above $417,000, which often go to buyers of larger homes who have good credit.

It proved vulnerable when investors stopped buying such loans, and it failed to cover $610 million of margin calls from its lenders.

Thornburg's $3.31 billion loss stemmed largely from write-downs, losses on mortgage sales, and the capital-raising. The capital came from MatlinPatterson Global Advisers, which invests in distressed companies, and other investors.

Well over 100 mortgage lenders have stopped lending, sold themselves or gone bankrupt since the beginning of 2007. Though the capital-raising kept Thornburg in business, it heavily diluted existing shareholders.

Those shareholders last week approved an increase in authorized shares to 4 billion from 500 million. Thornburg shares closed Tuesday at 69 cents, New York Stock Exchange data show. Their 52-week high is $27.80, set last June 20.

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