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Thornburg Faces More Challenges

Thornburg Mortgage faces the possibility of more writedowns of mortgage securities backed by repurchase and commercial paper financing, according to a report from analysts at Friedman Billings Ramsey here.

FBR gives Thornburg, a jumbo adjustable-rate mortgage lending specialist, a price target of $5, which represents 70% of FBR's estimated book value for the firm. FBR said the low price target represents Thornburg's exposure to "continued risk exposure to further liquidity events."

FBR also has an "underperform" rating on the company's stock.

Recently, Thornburg mortgage sold $20.5 billion of AAA-rated mortgage securities, resulting in a loss of $930 million. FBR said that Thornburg sold the securities at 95% of par value, causing a loss of $7.58 per common share.

Thornburg has about $11.2 billion of ARM securities remaining on its books, which are financed through repurchase lines and commercial paper. The analysts said they expect Thornburg to see further pressure on the valuation of these assets.

Moreover, FBR said that management will be forced to cut Thornburg's generous dividend. Currently the company pays a $0.68 quarterly dividend, which resulted in a yield of 18% based on the company's Aug. 20 stock price of $15 per share.

FBR estimates that the dividend will have to be cut to less than half the current level.

Thornburg's stock has suffered in recent months as a result of concern about credit quality and disruptions to normal secondary market activity. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com/

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