Thornburg Mortgage President and Chief Executive Officer Larry Goldstone in a recent interview with Erin Burnett, co-anchor of CNBC's "Squawk on the Street."

"Quite simply, the panic that has gripped the mortgage financing market is irrational and has no basis in investment reality"

Thornburg Mortgage - the second-largest independent mortgage lender in the United States - signalled on Friday that it's on the brink of collapse as it is unable to meet $610 million of margin calls from its lenders. The calls force borrowers to pay back loans or post more collateral. Thornburg CEO said that panic had gripped the mortgage financing market.

The home loan lender that specialized in mortgages to relatively wealthy clients with good credit records, saw its stock value plunge 86% this week as creditors seized billions of dollars of collateral and triggered a fire sale on the bond market.

Lenders such as Thornburg, have limited capital and rely on short-term credit lines more than other big financial institutions. To secure the funding, they use the loans they originate or securities they own as collateral. A plunge in the value of the collateral can lead banks to issue margin calls.

The Wall Street Journal reported that Wall Street dealers were trying to sell at least $8 billion of Thornburg's securities. Bids ranged from 50 to 80 cents on the dollar.

Bill Gross, the Founder and Chief Investment Officer of PIMCO (Pacific Investment Management Co.), the largest bond fund in the United States, said in an interview on the CNBC business television channel on Friday, that the firm bought about $100 million of Thornburg's debt in the recent days. Gross said he expected the return on the investment to be close to double-digits. SEE: video

Thornburg said on Friday that the company's auditor KPMG had raised "substantial doubt about the company's ability to continue as a going concern" and that "the company's consolidated financial statements as of December 31, 2007, and 2006, and for the two-year period ended December 31, 2007, which is included in the company's Annual Report on Form 10-K for 2007 (the return that is made to the US Securities and Exchange Commission -SEC), should no longer be relied upon."

 As a result, the company's Board of Directors determined that the financial statements for the year ended December 31, 2007, should be restated. The company said it "noted that difficult market conditions that have resulted in a significant deterioration of prices of mortgage-backed collateral, combined with a liquidity position under unprecedented pressure from increased margin calls by its reverse repurchase agreement lenders, a portion of which the company has been unable to meet, have raised substantial doubt about the company's ability to continue as a going concern. In addition, the Company may not have the ability to hold certain of its purchased ARM (Adjustable Rate Mortgages) assets to recovery and, accordingly, on March 5, 2008, the Company concluded that a $427.8 million charge for impairment on its purchased ARM assets is required as of December 31, 2007, in accordance with generally accepted accounting principles. Based upon a review of credit ratings, delinquency data and other information, the company does not believe these unrealized losses, for the most part, are reflective of credit deterioration."

Thornburg Mortgage President and Chief Executive Officer Larry Goldstone noted that companies are required to value their asset portfolios at the price that the portfolio could be sold in the market as of the financial statement date. Companies must recognize a loss in the income statement if they are not able to hold the assets until their value is recovered, even if those companies have no intention of selling their portfolios.

"The mortgage financing market's complete inability to differentiate and appropriately value superior AAA-/AA-rated mortgage securities from all other mortgage assets is as unprecedented as it is frustrating," said Goldstone. "Our portfolio of mortgage-backed securities has exhibited exceptional credit performance and comprises loans that are among the most solid in the industry. Quite simply, the panic that has gripped the mortgage financing market is irrational and has no basis in investment reality."

The company said that it had readily available liquidity of approximately $580.0 million at December 31, 2007. Through the close of business on March 6, 2008, the company had received $1.777 billion in margin calls since December 31, 2007, and had satisfied $1.167 billion of those margin calls primarily by using its available liquidity, principal and interest payments and proceeds from the sale of assets. As of close of business on March 6, 2008, the company had outstanding margin calls of $610.0 million which significantly exceeded its available liquidity at that date. The company has entered into a temporary syndicate agreement with its remaining reverse repurchase agreement counterparties which freezes additional margin calls through Friday, March 7, 2008, while the company pursues solutions to its liquidity shortfall. This agreement is renewable at the option of the company's lenders and the company. Through the close of business on March 6, 2008, the company had received notices of event of default under reverse repurchase agreements from four different lenders.

Last month, Thornburg reported its fourth quarter earnings. It had mortgage originations of $516.7 million and "exceptional credit performance with 0.44% 60-plus day delinquencies."

It reported net income before preferred stock dividends for the quarter ended December 31, 2007, of $64.8 million, or $0.33 per diluted common share and $0.34 per basic common share, as compared to $80.3 million, or $0.68 per basic and diluted common share, for the same period in the prior year. Net loss before preferred stock dividends for the year ended December 31, 2007, was $874.9 million as compared to net income of $297.7 million for the year ended December 31, 2006.