Wachovia sues Thornburg Mortgage

Wachovia said in a complaint filed at the U.S. District Court in Manhattan on Thursday that it had an agreement with Thornburg, under which they entered into derivatives contracts, including a series of interest rate swaps.

Thornburg said it was "surprised by Wachovia's complaint."

"As previously agreed to by both parties, Thornburg Mortgage will fulfill its obligation to Wachovia on Monday," a company spokeswoman said.

Under the terms of their agreement, Thornburg was required to return collateral to Wachovia on August 15, according to the complaint.

"Despite the clear terms of the agreement, however, Thornburg Mortgage has failed to pay Wachovia," the bank said in the complaint.

"Despite its repeated acknowledgment of the amount it owes to Wachovia, Thornburg Mortgage refuses to transfer the funds," Wachovia said.

Earlier this week, Thornburg said it sold off $20.5 billion of assets and reduced short-term borrowings by an equivalent amount.

It said then the asset sales will stabilize the company's ability to meet its financing obligations and continue its mortgage lending operations.

Mortgage lenders have increasingly had trouble financing their operations as investors panic about the home loan market, where home prices are declining and defaults are rising.

(Reporting by Paritosh Bansal)