In the Crosshairs: Wachovia Corp.

Get thee to court: Wachovia Corporation’s exposure to the mortgage mess is getting plenty of attention today — perhaps the most interesting item is a Wall Street Journal story that says that the nation’s fourth-largest bank is suing Thornburg Mortgage for $5.1 million:

Wachovia Corp.’s banking unit has sued Thornburg Mortgage Inc., alleging the mortgage provider hasn’t returned $5.1 million from an unwound series of derivatives transactions.

The Charlotte, N.C., bank filed its suit in federal court in Manhattan late Thursday, alleging the Santa Fe, N.M., jumbo-mortgage provider breached its contract and failed to return monies that were used as collateral in derivatives contracts, including a series of interest-rate swaps.

The companies had agreed to unwind, or terminate, the swaps earlier this month, according to the lawsuit.

WSJ subscribers can read the full story. Thornburg certainly has had its share of problems lately (read HW posts on Thornburg here), including some class-action trolling as well.

Wachovia wholesale fallout: On the heels of suspending its Alt-A fundings earlier in the month, news is breaking today that 100 mortgage employees at the company’s East Bay locations will lose their jobs, with an unspecified additional number of wholesale employees also facing pink slips:

The mortgage morass has engulfed more workers in the East Bay with a Wachovia Corp. decision to jettison at least 100 home-lending jobs in the region …

… The company has decided to dismiss 100 workers in San Leandro and 15 in Walnut Creek, Don Vecchiarello, a spokesman for Wachovia’s mortgage operations, said Thursday.

What’s more, Wachovia confirmed it has chopped additional employees in its wholesale mortgage operations in Northern California. Vecchiarello would not specify locations or precise numbers. A source familiar with the situation said staff cuts have been under way since April.

“It’s a combination of what has been going on with the mortgage industry, the economic climate in the housing market,” Vecchiarello said. “It’s also the integration between Golden West and Wachovia.”

Looking Golden: In spite of challenges, Wachovia executives remain upbeat about their purchase of option ARM specialist Golden West, and have hit the streets with the message. The AP reports:

Wall Street is still not convinced that Wachovia Corp.’s $24 billion purchase last year of one of the country’s largest mortgage lenders was a smart bet. But bank executives say the doubters are wrong and insist the takeover is working out just fine …

“We set out to build our franchise with the fastest growing market in the West,” Wachovia’s Chief Financial Officer Tom Wurtz said in an interview with The Associated Press. “We have been successful.”

The Wall Street Journal agrees, and says that Wachovia could prosper from the mortgage downturn. (Cue Gloria Gaynor’s “I Will Survive”).

I think Wachovia is in a better position than some of its competitors, but pointing to Golden West as the paragon of health right now might not mean much — negative amortization is booked as income, which can mask larger problems of credit quality. Further, lower reported default rates on option ARMs might merely mean that the borrower hasn’t yet faced a recapitalization event.