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March 7, 2008

JPMorgan issues default notice to US mortgage lender

by Gill Montia

Story link: JPMorgan issues default notice to US mortgage lender

Wall Street bank, JPMorgan, has issued Thornburg with a “default notice”, leaving the US mortgage lender on the brink of bankruptcy.

The move is in response to a significant decline in Thornburg’s assets which has left it unable to meet a $28 million margin call.

The latter is issued by a lender when the securities bought with borrowed money decrease in value past a certain point.

Thornburg, which specialises in mortgages in excess of $417,000, also holds investments in the form of bonds backed by home loans.

The values of both have dropped sharply in recent weeks, as investors keep away from the debt markets.

Thornburg’s debt to JPMorgan is in the region of $320 million and if the bank forces it to liquidate some of its assets, other Thornburg creditors could follow suit, forcing the lender into bankruptcy.

In the fourth-quarter of 2007, foreclosures on US properties reached record levels, prompting Citigroup to announce yesterday that it plans to reduce the value of the mortgages it has on US properties by 20% ($45 billion) in the coming year.

It will achieve this by converting a proportion of its mortgage book into bonds that can be sold.

However, the move could create further downward pressure on the troubled market for mortgage-backed securities.

 

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