Wachovia dismisses breach-of-contract lawsuit

NEW YORK – Wachovia, the fourthest largest US bank, dropped the lawsuit a day after New Mexico-based Thornburg returned the $5.1 million collateral to the bank.

Wachovia sued Thornburg on the ground that the mortgage provider allegedly breached its contract and failed to return money that was used as collateral in derivatives contracts, including a series of interest-rate swaps. The companies had agreed to unwind, or terminate, the swaps earlier in the month.

Last month Thornburg said it had recently sold $20.5 billion in assets to pay down its short-term borrowings to stabilize its ability to meet financing obligations. Thornburg Mortgage focuses on the jumbo segment of the adjustable-rate mortgage market – mortgages generally totalling over $417,000. Increased subprime mortgage defaults have evaporated credit for many mortgage lenders.