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Thornburg Mortgage to File for Bankruptcy, Liquidate

Posted on 01 Apr 2009

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Thornburg Mortgage Inc., the "jumbo" residential loan specialist battling a slump in home sales and the collapse of mortgage markets, plans to file for bankruptcy protection and shut down.

The lender's remaining assets will be sold or liquidated to pay bondholders and creditors, and the firm will then discontinue operations, according to a statement today from the Santa Fe, New Mexico-based company.

Thornburg specialized in mortgages of more than $417,000, typically used to buy more expensive homes. The firm started running short of cash in August 2007 as foreclosures nationwide headed toward new highs and investors became leery of assets backed by home loans. Thornburg lined up new backers including MatlinPatterson Global Advisers LLC, which became the company’s biggest shareholder.

MatlinPatterson returned its stake earlier this year and warned on March 17 that a Thornburg bankruptcy was likely.

Eight investment firms including JPMorgan Chase Funding Inc. and Citigroup Global Markets Limited agreed to delay their demand for payments from Thornburg through April 30, according to the statement. In return Thornburg will allow additional sales of loans held by the counterparties, with proceeds used to reduce the company’s debt.

Thornburg also agreed to transfer its mortgage-servicing rights to the investment firms, the company said. The company has about 150 employees, said Suzanne O’Leary Lopez, a spokeswoman.

“Our dissolution was created by one issue - the inability to support the equity requirements for financing our mortgage securities portfolio, given the continued decline in mortgage- backed securities prices,” she said.

Thornburg hired Houlihan Lokey Howard & Zukin Capital Inc. to help sell its assets, according to the statement.