Confirming press reports from last week, Merrill Lynch said late Wednesday that it will shutter its First Franklin subsidiary, discontinuing all origination activity at the lender and exploring a potential sale of the company's mortgage loan servicing unit. In a press statement, Merrill said it closed First Franklin "because of the deterioration of the subprime lending market." "Since July, we have reduced staffing at First Franklin by nearly 70 percent, but after evaluating a number of strategies, we believe it is appropriate to discontinue mortgage origination,” said David Sobotka, head of fixed income, currencies & commodities at Merrill Lynch. About 650 people will be affected by the discontinuation of mortgage origination at First Franklin and First Franklin’s NationPoint division, with company spokesman Bill Halden telling Reuters that most of the cuts will come before the end of this month. Merrill said it expected roughly $60 million in severance and real estate costs as part of the move to close the lending operation down. Merrill's decision to seek a sale of First Franklin's servicing platform comes after sources had suggested to Housing Wire last week that the company was planning to combine the First Franklin platform with Merrill's Beaverton, Ore.-based Wilshire Credit Corporation. It also renders former Stan O'Neal's grand experiment into subprime lending an abject failure for one of Wall Street's largest firms. Merrill purchased First Franklin at the end of 2006 from National City Corp. in a deal worth $1.3 billion, right before the subprime mortgage market hit a wall. For more information, visit http://www.ml.com. In news that may presage bankruptcy for a mortgage lender with otherwise stellar asset quality, Thornburg Mortgage said yesterday that it had received a notice from JPMorgan Chase earlier this week claiming an "event of default" under a repurchase agreement with the Wall Street bank after failing to meet a $28 million margin call. In a filing with the Securities and Exchange Commission late Wednesday, Thornburg said that JPMorgan will "exercise its rights under the agreement." The Wall Street firm lent the troubled ultra-prime lender $320 million, Thornburg said. "The company’s receipt of the notice of an event of default has triggered cross-defaults under all of the company’s other reverse repurchase agreements and its secured loan agreements," Thornburg said in its filing with the SEC. Full details were not provided, but the company described its exposure under the now-defaulted repurchase agreements as "material." A call to the company for comment was not immediately returned. On Monday, Thornburg warned that it had received nearly $600 million in margin calls since the middle of February on its portfolio of Alt-A mortgage-backed securities, and that it was unable to meet all of the calls. Recent industry speculation has centered around rumors that some large holders of RMBS securities have become forced sellers in recent days, driving down the price of mortgage-backed securities like those held by Thornburg. The company's stock dropped more than 60 percent in pre-market trading Thursday, falling to $1.36. Disclosure: The author held no positions in MER when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.