Garrett Thornburg compares the fall and rise of Thornburg Mortgage to a basketball game that could just as soon have been lost as won.

The key to victory, he said in a recent interview at the company's offices on Washington Avenue, was and continues to be Larry Goldstone, Thornburg Mortgage president and chief executive officer. Goldstone also took part in the interview.

When Thornburg Mortgage was in crisis last summer that was brought on by what Thornburg characterizes as the worst credit crunch since 1907, "Larry said, 'Give me the ball,' " Thornburg said. "He did a great job — nothing but net. We need to acknowledge Larry's role" in the crisis.

"Under Larry's direction," Thornburg added in a statement, "the management team not only survived one of the toughest mortgage market environments in history but strongly positioned the company to take advantage of market opportunities we anticipate in 2008."

Thornburg Mortgage is a mortgage lender that focuses primarily on high net worth buyers who are interested in jumbo and super jumbo adjustable rate mortgages. The average wholesale loan size was
$1.2 million in 2007.

The company, which is a real-estate investment trust, makes its money by both acquiring high-quality mortgage securities and originating new mortgages.

Before the crisis, Thornburg Mortgage was New Mexico's largest publicly traded company, with more than $50 billion in assets.

Last August, Thornburg Mortgage fell victim to a massive, nationwide credit crunch that dried up the mortgage origination business and resulted in demands by lenders for borrowers to pay their debts.

Hundreds of mortgage companies were unable to do so and saw the value of their shares plummet. Many went out of business. Among the hardest hit was Countrywide Home Loans, the nation's largest mortgage company. Countrywide was later acquired by Bank America.

Thornburg Mortgage also had difficulties, with its stock plunging to below $8 a share at the height of the crisis. But unlike other lenders, Thornburg Mortgage is now back in the black.

"The way I see it," Goldstone said, is that although the company had to sell billions in assets in August 2007 to cover its debts, "the underlying fundamentals of our balance sheet and our business always remained pristine. That's why we were able to come back very, very fast."

In a news release, Goldstone elaborated, saying that "new asset acquisition opportunities will help us continue to provide earnings and dividend growth for shareholders in the future while gaining market share in the prime jumbo mortgage origination business."

Those "new assets" include the $819.2 million in new mortgage assets Thornburg Mortgage acquired in the month of January with anticipated yields of about 5.63 percent, Goldstone said. "In addition to those assets acquired in the fourth quarter (of 2007), we expect they will contribute favorably to our net interest margin in 2008."

Goldstone's confidence arises from the fact that Thornburg Mortgage can now borrow money at approximately 3 percent, earning the company 263 basis points (a basis point is 0.01 percent) in yield.

"That compares with a 96-basis-point spread for the rest of the company's portfolio," Goldstone said.

"That spread is the principal driver of our profitability," Goldstone said. "It is the only driver of our profitability."

Goldstone and Thornburg expect the spread to increase, mainly because the Federal Reserve has cut the federal funds rate from 4.25 percent to 3.50 percent.

"That means our cost of borrowing money drops," Goldstone said. "Our asset yields didn't drop anywhere near that much. ... What it all means is that our profit is going to escalate dramatically, even from where it was in December."

Goldstone added: "And that's just the tip of the iceberg. The financial environment is much more favorable now than it has been in the last three years."

Another factor that has allowed Thornburg Mortgage to recover so quickly is the quality of its mortgages. The company has only a .44 percent delinquency rate. That compares with an industry average of 4.23, Thornburg said. "That means we have about one-tenth of the industry's bad-credit problems," Thornburg said.

Thornburg Mortgage has a $24.6 billion portfolio of securitized and unsecuritized loans.

The company expects to originate $6.1 billion in new loans in 2008. By the end of January the company had already originated $346.7 million in new loans.

The company's mortgage lenders increased 12 percent, and Thornburg Mortgage now has 306 correspondent partners. The company is now the country's 19th largest correspondent lender.

"Our mortgage origination business is virtually coming back in its entirety," Goldstone said.

Throughout the crisis, Thornburg Mortgage retained its employees, who numbered 201 on Aug. 1 of 2007 and now number 202. Nobody was laid off, Goldstone said, even though the company had to shut down completely for several weeks last August and September.

Around the country, in contrast, thousands of people working for mortgage lenders lost their jobs.

In early September, in the midst of the crisis, Garrett Thornburg raised company morale when he decided to go ahead with the groundbreaking of the new Thornburg Companies' campus on North Ridgetop Road, near N.M. 599.

In his remarks at the time, Thornburg said he expected the company to benefit from the downturn, emerging as a stronger, more competitive company.

"Going ahead with the new campus was a big step for us," Thornburg said in last week's interview.

During the fourth quarter, Thornburg Mortgage raised $91 million through the sale of common stock at an average net price of $9.80 per share.

There is a small cloud hanging over the company — Thornburg Mortgage is facing five class-action lawsuits arising from the credit crisis, all of which will be heard in U.S. District Court in Santa Fe.

The lawsuits charge the company with inflating its financial situation and misleading investors.

"They have no merit whatsoever," Garrett Thornburg said. "Look at our disclosure — it's always been substantial."

Thornburg Mortgage might be expected to benefit from recently increased loan limits for loans that can be sold to Fannie Mae and Freddie Mac. Currently the limit is $417,000. But Goldstone said stricter credit standards may limit the ability of many home buyers to apply for new loans.

Thornburg Mortgage's recovery has not gone unnoticed on Wall Street, with several brokerage houses raising the company's rating. The most recent was Credit Suisse, which rates the company "neutral," up from "underperform."

Previously Richard Shane Jr., an analyst with Jefferies & Co., upgraded Thornburg Mortgage to "buy" from "hold."

In a note to clients, Shane said Thornburg Mortgage's problems were not the result of risky investments but poor financing. Rising delinquencies and defaults by mortgage holders had caused investors to avoid lenders in recent months.

"As Thornburg Mortgage's liquidity position has now improved, we believe the stock is at an inflection point characterized by accelerated earnings and dividend growth," Shane wrote in a research note.

The value of the company's loans should increase as the mortgage market stabilizes, Shane said.

Shane set a target price of $14 for Thornburg Mortgage and said he expects the company to increase its dividend to $1.35 cents per share in 2008.

Two Santa Fe financial advisers are also basically optimistic on Thornburg Mortgage.

"I think for the appropriate client, it's a great time to buy, said Patricia Rudy-Baese, an independent certified financial planner. "They're a fundamentally sound company that was never involved in the subprime market. Unfortunately, they got slammed as did anybody who had anything to do with real estate."

Rudy-Baese cautioned that anybody investing in Thornburg Mortgage or any other stock these days "has to be patient and have a strong stomach" because of frequent market volatility.

Greg Duran of New World Capital Management said he is concerned about the market as a whole and expects it to be down for years.

"I think equities are dead," he said. "There won't be a meltdown, but we won't see another bull market for a long time. I expect equities to be slightly flat to down." As for Thornburg, "they're a solid company," Duran said. "They have real quality people working there."

Information from the Associated Press was used in this story.

Contact Bob Quick at 986-3011 or bobquick@sfnewmexican.com.