MGIC Weathering Mortgage Storm

Paul Gores, Journal Sentinel

Although the private mortgage insurance industry continues to lose money amid the lingering foreclosure crisis, Milwaukee’s MGIC Investment Corp. is in far better condition than a competitor that was seized by regulators last week, analysts said Monday.

Claims on mortgage defaults had sapped capital at Arizona-based PMI Mortgage Insurance Co. to the point that regulators in that state took control of the company and ordered it to pay claims at only 50 cents on the dollar.

Mortgage insurers pay lenders part of their costs when borrowers default.

MGIC, which has not had a profitable year since 2006 and last Friday reported a third-quarter loss of $165.2 million, nonetheless is prepared to handle losses, analysts said.

"MGIC is clearly in a better position than PMI was," said Thane Bublitz, a financial industry analyst for Thrivent Asset Management in Appleton.

MGIC raised about $1 billion in new capital in 2010, and the parent company intends to contribute $200 million to its insurance operations. Company investor relations spokesman Michael Zimmerman said Monday that even under a more stressful scenario, MGIC would expect to have resources to be able to pay its mortgage insurance policy obligations.

In addition, the company has – and is seeking an extension of – waivers to ease capital requirements needed to write new business if its risk-to-capital ratio would no longer meet normal standards. MGIC also has in place a subsidiary which, if needed, could issue new policies while the current one handles policies already in its portfolio.

PMI had been under regulatory scrutiny as its capital fell, and was ordered by regulators in August to stop selling new policies.

Jim Ryan, an analyst with Morningstar Inc. in Chicago, said MGIC is "certainly nowhere near as bad off as PMI was even three months ago."

As competitors are restricted from issuing new mortgage insurance, a stronger company such as MGIC could benefit, Ryan said. New policies are desirable because they provide new revenue and, under today’s restrictions, are less risky than those from the mid-2000s that continue to go into default.

"These are all things that work in their favor," Ryan said.

Still, how MGIC fares in the long run depends on the duration of the downturn in housing, analysts said. MGIC doesn’t appear to need additional capital at the moment, but could down the road, they said.

"If the housing market doesn’t stabilize and start improving, then that’s when they may get into trouble," Bublitz said.

He noted, however, that "fundamental trends" have been improving for MGIC.

While Ryan stressed that MGIC isn’t in the same boat as PMI, he said the housing market remains in a malaise – something MGIC can’t control. He said "it’s possible, but it’s not inevitable" that MGIC would need to raise additional capital.

 

 

 

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~ by mortgagecompliancecorner on October 25, 2011.

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