•MGIC Reports Its Ninth Consecutive Loss as Mortgage Defaults Reach Record

MGIC Posts Ninth Straight Loss as Defaults Hit Record (Update3)
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By Jamie McGee

Oct. 16 (Bloomberg) -- MGIC Investment Corp., the largest U.S. mortgage insurer, posted its ninth straight quarterly loss after a record number of homeowners failed to meet mortgage payments. The insurer fell 14 percent in New York trading.

MGIC’s third quarter net loss quadrupled to $517.8 million, or $4.17 a share, from $115.4 million, or 93 cents, in the same period a year earlier, the Milwaukee-based company said today in a statement. Excluding some investment gains, MGIC lost about $4.44 a share, missing the average loss estimate of a $1.74 by six analysts surveyed by Bloomberg.

The insurer’s run of losses, now totaling more than $3 billion, are mounting after U.S. unemployment hit a 26-year high and home foreclosures reached a record. MGIC twice deferred interest payments on a portion of its debt by 10 years to conserve cash and had its credit rating downgraded by Moody’s Investors Service.

Delinquencies on prime loans, those to the least-risky borrowers, “are really beginning to accelerate now if you look across the mortgage market,” said Matt Howlett, an analyst at Fox-Pitt Kelton Inc. in New York, in an interview before the results were released. “Unemployment continues to go up. That is what’s driving it.” The jobless rate climbed to 9.8 percent in September, the highest since 1983.

MGIC fell $1.02 to $6.30 at 9:30 a.m. in New York Stock Exchange composite trading. The insurer’s shares sold for as much as $70.10 in 2007.

Sales Decline

Policy sales fell 24 percent to $278.3 million from $365 million a year earlier. The insurer covered $4.6 billion of new mortgages, compared with $9.7 billion in the same quarter last year. Mortgage insurers pay lenders when homeowners default and foreclosures fail to cover costs.

Claims cost rose 23 percent to $971 million. As of the end of September, 16.9 percent of loans were delinquent, compared with 15 percent on June 30 and 10.2 percent a year earlier.

A total of 937,840 U.S. homes received a default or auction notice or were repossessed by banks in the quarter, a 23 percent increase from a year earlier, RealtyTrac Inc. said yesterday. One out of every 136 U.S. households received a filing, the highest quarterly rate in records dating to January 2005, RealtyTrac said.

Fannie Mae

MGIC won permission from government-run mortgage financing firm Fannie Mae to sell policies under its subsidiary and is seeking approval with mortgage lender Freddie Mac and its regulator in Wisconsin, MGIC said in the statement. The insurer said in July it would inject as much as $1 billion into the inactive unit to sell more insurance if regulatory requirements on its active operation forced a halt to sales. The infusion was delayed, MGIC said in August.

MGIC faces increased competition in an industry that has shrunk by more than half in a year. Essent Guaranty Inc., backed by JPMorgan Chase & Co. and Goldman Sachs Group Inc., said in July it would begin selling policies. The new company won’t be hobbled by the money-losing coverage sold in 2006 and 2007 that have contributed to the losses at older rivals.

Mortgage insurers tightened underwriting guidelines last year to avoid backing riskier policies, adding to the decline in sales. Insurers sold $50.4 billion of mortgage coverage in the first half, a 61 percent decline from the same period a year earlier, according to data compiled by Inside Mortgage Finance, a trade publication.

‘Increased Risk’

The U.S. Treasury Department introduced a mortgage- modification plan this year to reduce loan costs for homeowners. Treasury Secretary Timothy Geithner said last week the “Making Home Affordable” program had altered the terms on loans to 500,000 households, or about 40 percent of the 1.2 million homeowners eligible for the program.

“There has been minimal financial benefit to date,” from loan modification programs, Chief Executive Officer Curt Culver said in the statement.

Until 2007, private mortgage policies had been among the most profitable types of coverage sold by insurers. From 2004 to 2006, members of the Mortgage Insurance Companies of America reported a profit margin of at least 35 cents for every dollar they collected in premiums. Auto insurers made less than 5 cents on every dollar in 2006, according to A.M. Best Co.

PMI Group Inc., the third-largest U.S. mortgage insurer, is scheduled to release results Nov. 6. Radian Group Inc., the second-largest, has not yet announced a date. Triad stopped selling policies last year when capital ran short.

Mortgage insurer rankings are based on sales of coverage for individual homeowners in the first six months of 2009, as complied by Inside Mortgage Finance.

To contact the reporter on this story: Jamie McGee in New York at Jmcgee8@bloomberg.net.
Last Updated: October 16, 2009 09:36 EDT