The Wall Street Journal-20080214-Credit Crunch- Mortgage Insurer MGIC Posts Loss- Sets for More
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Credit Crunch: Mortgage Insurer MGIC Posts Loss, Sets for More
Full Text (372 words)MGIC Investment Corp. swung to a fourth-quarter loss as it established a $1.2 billion reserve to cover future losses as the mortgage insurer was hard-hit by the credit crisis.
The Milwaukee company reiterated it doesn't expect to turn a profit this year. It said that despite the difficult environment, it has "adequate" capital to meet its claim obligations, but it retained an adviser to assist it in exploring alternatives for increasing its capital.
The reserve reflects the present value of expected future losses and expenses related to Wall Street bulk transactions.
Revenue climbed 8.7% to $399.1 million, helped by an increase in earned premiums and investment income.
MGIC said low cure rates -- the percentage of defaults resolved without a claim -- higher loss severities and higher delinquencies had a "material impact" on the company's results.
Net premiums written jumped 25% to $380.5 million. New insurance written climbed 55% to $24 billion despite bulk business's tumbling 53% to $2.4 billion. MGIC said in January it stopped writing the portion of its bulk business that insures loans included in Wall Street securitizations in the fourth quarter.
And last week, MGIC said its Mortgage Guaranty Insurance Corp. unit was adopting new underwriting criteria in an effort to improve the credit-risk profile of its new insurance written.
MGIC incurred $1.35 billion in losses, up from $187.3 million, reflecting increases in the number and size of loans that are delinquent, increased loss severity and decreased cure rates in certain markets -- particularly California and Florida. In January, MGIC projected it would record about $1.3 billion in incurred losses.
In January, MGIC said its number of delinquent mortgages reached 107,120 at the end of 2007, up from about 91,120 at the end of the third quarter.
Mortgage insurers such as MGIC cover potential lender losses on loans to borrowers who can't make a 20% down payment. Mortgage insurers have seen claims skyrocket over the past year, as the lack of liquidity in the housing market makes it difficult for borrowers to refinance or for lenders to resell foreclosed properties at profitable prices, forcing mortgage insurers to pay up.
MGIC's shares were down $1.57, or 11%, to $12.61 at 4 p.m. in New York Stock Exchange composite trading.
