Investors bailing on Thornburg Mortgage (NYSE: TMA) are being short sighted. The stock is well on its way to recovering ground it lost on Monday when trading was halted after the stock lost 50% when ratings agencies downgraded it. The stock closed Thursday at $12.38, up $1.82 for the day, having already gained back 50% of its loss.

Why did the ratings agencies downgrade the stock? Perhaps because of the word "mortgage" in its name. But Thornburg Martgage has nothing to do with the subprime mortgage mess. Thornburg Mortgage writes only jumbo mortgages, average mortgage is just shy of $1 million, and only for high net worth individuals with superior credit. Delinquent loans total a mere 0.21% of Thornburg's $24.7 billion portfolio. This delinquency level is one-tenth of the average comparable portfolio's default level.

Up until Monday, Thornburg Mortgage was doing very well, originating $1.7 billion in new loans in 2Q 2007. The company presently has more than 20,000 customers, and holds just under $14 billion in loans. During the quarter, net income rose 20% to $83.4 million, interest income jumped 27% to $102.3 million, and operating expenses remained very low, 0.19% of assets. Not a single security in Thornburg's portfolio has been downgraded. Rather several dozen securities have been upgraded. The ARM portfolio is 94.6% AAA or AA rated. The problem is clearly not one of quality of the stock, but the fact that securitized mortgage bundles are no longer as liquid as previously anticipated.

CEO Garrett Thornburg has stated that the company will be able to self-finance as of mid-September after it has received August payments. It will pay out the quarterly dividend at that time. Garrett Thornburg's personal money is involved here, as is his reputation as a philanthropist in his howmtown. He is not about to risk either one. Contrarian investors need to look over Thornburg Mortgage quick while it's still a bargain.