Wednesday, February 13, 2008

MGIC Reports: Ugly, Ugly, Ugly

by Tanta on 2/13/2008 09:05:00 AM

MILWAUKEE, Feb 13, 2008 /PRNewswire-FirstCall via COMTEX/ -- MGIC Investment Corporation today reported a net loss for the quarter ended December 31, 2007 of $1.47 billion, including certain items described below. This compares with net income of $121.5 million for the same quarter a year ago. Diluted loss per share was $18.17 for the quarter ending December 31, 2007, compared to earnings per share of $1.47 for the same quarter a year ago.

Included in the quarterly results is the establishment of a pre-tax premium deficiency reserve of approximately $1.2 billion relating to Wall Street bulk transactions. The premium deficiency reserve reflects the present value of expected future losses and expenses that exceeded the present value of the expected future premium and already established loss reserves for these bulk transactions. Also included in the quarterly results is an after-tax charge of $33 million related to equity losses incurred by C-BASS in the fourth quarter that reduced the carrying value of the $50 million note from C-BASS to zero.

Curt S. Culver, chairman and chief executive officer of MGIC Investment Corporation and Mortgage Guaranty Insurance Corporation (MGIC), said that the low cure rates coupled with higher loss severities and higher delinquencies had a material impact on the company's financial results both in the quarter and for the year. Mr. Culver said that given the company's expectations for credit loss development, unless the cure rate and loss severity improves, the company does not foresee net income for 2008. . . .

As of December 31, 2007, the delinquency inventory is 107,120. At December 31, 2007, the percentage of loans that were delinquent, excluding bulk loans, was 4.99 percent, compared with 4.08 percent at December 31, 2006, and 4.52 percent at December 31, 2005. Including bulk loans, the percentage of loans that were delinquent at December 31, 2007 was 7.45 percent, compared to 6.13 percent at December 31, 2006, and 6.58 percent at December 31, 2005.

Losses incurred in the fourth quarter were $1.35 billion, up from $187.3 million reported for the same period last year due primarily to the increase in both the number and size of loans that are delinquent, increased loss severity, decreased cure rates in certain markets, particularly California and Florida, continued weakness in the Midwest, and increased paid losses. . . .

Historically a significant portion of the mortgage insurance provided by MGIC through the bulk channel has been used as a credit enhancement for securitizations. During the fourth quarter, the performance of loans included in Wall Street bulk transactions deteriorated materially. Therefore, during the fourth quarter of 2007, we decided to stop writing that portion of our bulk business. A Wall Street bulk transaction is any bulk transaction where we had knowledge that the loans would serve as collateral in a home equity securitization. In general, these bulk transactions on average reflect lower average FICO scores and a higher percentage of ARMs, compared to our other bulk business. We plan to continue to provide mortgage insurance on bulk transactions with the GSEs or portfolio transactions where the lender will hold the loans. Wall Street bulk transactions represented approximately 41%, 66% and 89% of our new insurance written for bulk transactions during 2007, 2006 and 2005, respectively, and at December 31, 2007 included approximately 145,000 loans with insurance in force of approximately $25.5 billion and risk in force of approximately $7.6 billion (which is 74% of our total bulk risk in force).
Guess they won't be holding the bag on those "Super Duper Seniors" any more . . .