Thornburg Mortgage (TMA) doubled in early trading Tuesday after the cash-strapped jumbo mortgage lender said it is in talks with its lenders over unmet margin calls. Thornburg shares have plunged from $11 apiece two weeks ago to 71 cents at Monday’s close after the company, which finances its lending operations through short-term loans, failed to meet millions of dollars in demands for additional collateral from its banks. But the company’s statement Tuesday suggests Wall Street banks such as Bear Stearns (BSC) and Lehman Brothers (LEH) are eager to work out a solution that will allow the company to resume lending once this month’s financial panic lifts.

“While we aggressively pursue more permanent solutions to our liquidity issues, we are in discussions with our lenders to reach a mutually satisfactory agreement that will enable us to meet all of our outstanding margin calls within an acceptable timeframe for our lenders,” CEO Larry Goldstone said, “and also mitigate the sale of high-quality assets at a significant loss in this environment.”

Thornburg also restated its 2007 annual report to show an impairment on some securitized adjustable-rate mortgage loans of $677 million, up from the company’s $428 million estimate of last week. “The company recognized this additional impairment charge in accordance with generally accepted accounting principles because it may not have the ability to hold certain of its securitized ARM loans to maturity,” Thornburg said. Shares rose 85 cents to $1.62.

Thornburg Mortgage (TMA) took some more lumps in the stock market Friday after the company said it has through the end of the day to figure a way out of its financing squeeze. The Santa Fe, N.M., jumbo mortgage lender said it had outstanding margin calls of $610 million as of Thursday afternoon, a figure that “significantly exceeded its available liquidity at that date.” Thornburg said that, in response, it has entered an agreement with its short-term lending counterparties “which freezes additional margin calls through Friday, March 7, 2008, while the company pursues solutions to its liquidity shortfall.” Thornburg, which also said Friday it needs to restate 2007 earnings to recognize a $428 million asset impairment charge, added that it is “working relentlessly” to meet the margin calls. Its shares fell 22 cents to $1.43.

Fannie Mae (FNM) plunged 12% to a 12-year low after a default notice at Carlyle Capital left the financial sector swooning. Guernsey, U.K.-based Carlyle Capital missed four margin calls yesterday totaling more than $37 million, Bloomberg reports. Carlyle Capital, run by private equity giant Carlyle Group, raised $300 million in July and used loans to buy about $22 billion of securities issued by Fannie Mae and Freddie Mac (FRE), the government-sponsored mortgage lenders, Bloomberg reports.

 The default at Carlyle Capital adds to worries that troubled hedge funds will be forced into fire sales of mortgage-backed securities, forcing prices down further. That would be bad for big holders of the securities such as Fannie, Freddie and other big financial institutions. The unrest comes as rates for short-term funding used by banks have hit their highest levels since debt markets seized up in December, The Wall Street Journal reports. Adding to the worries Thursday: a rumor, since batted down by Treasury, that the U.S. would step in to explicitly guarantee Fannie and Freddie’s debt.

Like Thornburg Mortgage (TMA), a jumbo mortgage lender that has seen its shares plunge more than 80% in a week amid missed margin calls and default notices, Carlyle Capital was done in by declines in the mortgage securities markets that led its lenders to demand more collateral. Echoing recent remarks by Thornburg chief Larry Goldstone, Carlyle Capital chief John Stomber said mortgage market values have come unmoored from the long-term value of the debt. “Unfortunately, this disconnect has created instability and variability in our repo financing arrangements,” he said, the Journal reports. “Management is actively working with the company’s repo counterparties to develop more stable financing terms.” In the meantime, expect more instability in the financial stocks.

Time seems to be running out for Thornburg Mortgage (TMA). The jumbo mortgage lender’s shares lost half their value in premarket trading Thursday after the company got a notice of default following Thornburg’s failure to meet a margin call. The disclosure, made in a Securities and Exchange Commission filing Wednesday afternoon, caps off a hectic and depressing week for Thornburg investors. The stock was still above $11 a share before the company admitted last Thursday that a decline in the market value of its mortgage portfolios had led to $300 million in calls for additional collateral from its lenders. Then, on Monday, Santa Fe, N.M-based Thornburg said it got additional margin calls - some of which it wasn’t able to meet, raising the prospect of a fire sale of assets. The company sought to soothe the markets by doing a financing transaction later that day, but Thornburg shares continued to fall.

Now, Thornburg is saying that its failure to meet a $28 million margin call from JPMorgan has led to an event of default on $320 million in loans from JPMorgan, as well as cross-defaults on other loans. “The company’s obligations under those agreements are material,” Thornburg warns. CEO Larry Goldstone has been adamant that Thornburg will weather the tough conditions in the markets and remain independent. He said during a previous liquidity squeeze in August that Thornburg wouldn’t consider filing for Chapter 11 bankruptcy protection. His resolve will surely be tested now. The stock, which fetched $28 a share a year ago, was last quoted at $1.65 in early action Thursday.

Thornburg Mortgage (TMA) is still standing. The Santa Fe, N.M., mortgage lender raised cash Monday afternoon via a financing transaction involving nearly $1 billion of prime hybrid adjustable-rate mortgage loans. Thornburg, which earlier warned that it hadn’t been able to meet a recent round of margin calls that came about following the latest plunge in the market for mortgage-backed securities, said it used the proceeds to reduce borrowings under its loan warehouse financing lines. The move comes on the same day analysts at Citi said the margin calls raised the prospect that “a more dire turn in the market could lead to bankruptcy” at the jumbo mortgage lender.

Thornburg, stung by some $570 million in margin calls over the past three weeks, said it now “anticipates an increased use of collateralized mortgage debt financing and reduced reliance on reverse repurchase financing.” The news eased the sharp selloff in Thornburg shares, though they were still down 47% at $4.75 apiece after earlier trading as low as $3.53.

The news keeps getting worse for Thornburg Mortgage (TMA). The Santa Fe, N.M., jumbo mortgage lender saw its shares plunge 23% in premarket trading Monday after the company said it received more margin calls as the market value of its mortgage securities holdings continued to fall. Thornburg, whose shares fell sharply late last week after the company said it received $300 million in calls for more collateral, said Monday morning that it has gotten an added $270 million in margin calls since then - and that it hasn’t been able to meet most of them. The company said it ”is working to meet all of its outstanding margin calls within a time frame acceptable to its lenders by either selling portfolio securities or raising additional debt or equity capital.” With Thornburg’s shares having lost three-quarters of their value over the past year, any capital-raising will come at a steep price to existing shareholders.

The company’s CEO, Larry Goldstone, blamed a quirk of fair value accounting for Thornburg’s plight. “The turmoil in the mortgage financing market that began last summer continues to be exacerbated by the mark-to-market accounting rules which are forcing companies to take unrealized write-downs on assets they have no intention of selling,” he said Monday. “In this environment, the current market price of assets has become disconnected from their underlying recoverable value, resulting in increased volatility and imprecise quarter-to-quarter comparisons of asset valuations.”

Goldstone isn’t the first to make this claim, but he remains upbeat about the prospect that Thornburg will muddle through the mortgage mess and realize higher profits. “These difficult market conditions have also created increased profit opportunities as lower-priced mortgage assets will translate into wider mortgage spreads and improved portfolio margins going forward,” Goldstone said. “We remain committed to manage through these challenging and volatile markets and remain focused on building long-term value for shareholders.”

Valentine’s Day was anything but sweet for jumbo lender Thornburg Mortgage (TMA). Shares of the New Mexico company slid 20% Thursday after Thornburg said weakness in the bond market resulted in more than $300 million in margin calls on its mortgage securities portfolio, starting on Feb. 14. The company said it doesn’t believe it will have to take any losses on the securities, but a sharp decline in demand for the paper has pushed market prices down, triggering calls from Thornburg’s brokers for additional collateral.

So far, the company has met the margin calls, but it now worries that it may have to sell assets into a weak market to raise cash if values continue to drop. “In the short term, the sudden decline in the valuation of these securities has left us with reduced readily available liquidity to meet future margin calls, relative to our cash and unpledged securities position of December 31, 2007,” Thornburg said in an 10-K filing with the Securities and Exchange Commission. “In the event that we cannot meet future margin calls from our available cash position, we might need to selectively sell assets in order to raise cash.”

Thornburg’s disclosure shows why federal regulators are eager to lift limits on the size of the mortgage portfolios at government-sponsored lenders Fannie Mae (FNM) and Freddie Mac (FRE). Wednesday’s cap-lifting decision isn’t likely to be of any immediate help to Thornburg, which specializes in loans bigger than Fannie and Freddie have been handling, though there’s hope that legislation passed earlier this year will eventually lead the GSEs into the so-called nonconforming market. In the meantime, Thornburg is left hoping the market doesn’t melt down further.

One bright spot in Tuesday’s stock-market swoon was Thornburg Mortgage Associates (TMA), the jumbo mortgage lender that like a number of other housing-finance firms endured a brush with insolvency when the mortgage securities market collapsed this past summer. Unlike rival Countrywide (CFC) - which promised a return to profit but posted a big loss instead - Thornburg returned to profitability in its fourth quarter, after reporting a billion-dollar third-quarter loss following a fire sale of part of its mortgage portfolio. Thornburg made $65 million, or 34 cents a share, down from the year-ago $80 million, or 68 cents a share.

 The company also said it could be a beneficiary of the push to boost the size of loans eligible for purchase by government-sponsored investors Fannie Mae (FNM) and Freddie Mac (FRE). Measures being considered in Congress would raise the so-called conforming loan limit to $625,000 or more from the current $417,000 - a move that could allow Thornburg to sell loans that until recently have had no buyers.

“With the potential for expanded agency guidelines raising the conforming loan limit, the company would expect to benefit from this market change as a notable percentage of its pipeline and existing unsecuritized loan portfolio would qualify under the increased loan limit,” Thornburg said Tuesday. “The company would then be able to create agency securities as well as the private label securities in order to further diversify its portfolio financing strategies.” Thornburg’s experience over the past year shows why investment advisers are always advocating a more diversified portfolio.