Fueling Tuesday's chaos and fears of economic fallout, mortgage lending has come to a virtual halt, even for originators of jumbo loans, or large loans to borrowers with high credit ratings. Thornburg Mortgage ( TMA) shares were down 46% Tuesday, when the New York Stock Exchange halted trading pending news. Thornburg had declined because the company announced Tuesday that it was temporarily suspending locking in rates on any mortgages.

After the closing bell, the company said it would delay payment of its quarterly dividend and said its book value per share fell to $14.28 as of Monday vs. $19.39 at the end of June, Reuters reports. But more importantly, the company said it faced a "sudden and unprecedented decline" in prices for its higher-rated securities -- those with AAA ratings. Thornburg said it was not having problems meeting its commercial paper obligations.

But it is exactly those higher-rated mortgage-backed securities that can be used as collateral in the asset-backed commercial paper market that took center stage Tuesday.

"The potential of broadening of systemic risk as a result of liquidity providers' conditional exposure to the asset-backed commercial paper market now looms as the most pressing issue facing financial markets," writes Jeffrey Rosenberg, chief fixed-income strategist at Bank of America.

Asset-backed commercial paper is debt with a maturity of typically 90 to 180 days issued by a bank or financial institution, which uses the borrowings for normal business operations like lending. The institution offers up receivables like mortgage payments, or collateralized debt obligation dividends, or actual physical assets as collateral.

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