October 16, 2009 / 12:17 PM / 10 years ago

UPDATE 3-MGIC Q3 takes hit from rising defaults; shares fall

* Q3 loss $4.14/shr vs. est $1.62/shr

* Total rev falls 10 pct

* Shares drop 20 pct (Recasts; adds details, housing rescue plan, CEO quotes, updates share movement)

By Sweta Singh

BANGALORE, Oct 16 (Reuters) - The largest U.S. mortgage insurer MGIC Investment Corp (MTG.N) posted a wider-than-expected quarterly loss as more people failed to repay their home loans, sending its shares down as much as 20 percent.

The company’s ninth straight quarterly loss coupled with rising delinquencies also weighed on shares of smaller rivals PMI Group Inc PMI.N and Radian Group Inc (RDN.N).

“Weak economy, higher unemployment and lower home prices continue to keep cure rates low which resulted in an increase in the delinquent inventory and consequently higher losses incurred for the quarter,” MGIC’s Chief Executive Curt Culver said in a statement.

At Sept. 30, about 14 percent of loans, excluding bulk loans, were delinquent, significantly higher than the 10 percent at Dec. 31.

Foreclosure filings — including mortgage default notices, house auctions and home repossessions by banks — were reported on 343,638 properties in September, down 4 percent from August, but up 29 percent from the year-earlier month, according to real estate data firm RealtyTrac.

MGIC’s third-quarter net loss rose more than four-fold to $517.8 million, or $4.17 a share. Total revenue fell more that 10 percent to $413.3 million.

Analysts on average were expecting a loss of $1.62 a share on revenue of $437.0 million, according to Thomson Reuters I/B/E/S.

The Milwaukee-based specialty insurance company saw its business prosper during a five-year housing boom that ended in 2006, but lately investors have shunned MGIC as record home loan defaults threaten the company’s stability.


Government controlled mortgage finance firm Fannie Mae FNM.N approved MGIC’s insurance unit MGIC Indemnity Corp (MIC) as an eligible mortgage insurer through the end of 2011. MGIC is waiting for approval from its regulator in Wisconsin.

In July, MGIC Investment said it plans to wind down its existing operations and capitalize a unit at the beginning of next year in a move that could let the company build fresh investments as the housing market stabilizes.

Mortgage finance companies Fannie Mae and Freddie Mac FRE.N partner with insurers like MGIC to help shield them from losses.

A home buyer who cannot offer a 20 percent down payment, for instance, will often turn to mortgage insurers. These insurers are expected to benefit from the U.S. government’s push to reduce defaults and let homeowners keep their homes.

“While there has been minimal financial benefit to date, for the first time we are seeing signs that the various loan modification programs designed to help responsible homeowners avoid foreclosure are being implemented,” CEO Culver said.

MGIC shares were down 18 percent at $6.00 in midday trade Friday on the New York Stock Exchange. Before Friday’s losses, the stock had risen 10-fold since its March lows.

Rival PMI’s shares fell more than 12 percent, while those of Radian skid more than 16 percent. (Additional reporting by Jochelle Mendonca in Bangalore; Editing by Ratul Ray Chaudhuri)

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