MGIC Leads Mortgage Insurer Slump After $151.7 Million Loss
July 18, 2011, 4:28 PM EDTBy Brooke Sutherland
(Updates shares in the second paragraph.)
July 18 (Bloomberg) -- MGIC Investment Corp. led a mortgage insurer slump after the company swung to a loss as fewer borrowers caught up on overdue loans.
MGIC, the largest U.S. mortgage insurer, dropped $1.38, or 23 percent, to $4.62 in New York Stock Exchange composite trading at 4 p.m. No. 2 Radian Group Inc. fell 14 percent and PMI Group Inc. dropped 13 percent. Genworth Financial Inc., the seller of life insurance and mortgage coverage, slipped 7.7 percent.
MGIC pays lenders when homeowners default and foreclosure fails to recoup costs, and losses swelled as the housing market slumped. The Milwaukee-based insurer today reported a net loss of $151.7 million, or 75 cents a share, in the three months ended June 30, its 15th unprofitable period in 16 quarters.
“Capital is a serious concern for mortgage insurers,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “I wouldn’t want to be a mortgage insurer right now. I do not envy their business risks.”
The second-quarter operating loss, which excludes some investment results, was 86 cents a share, missing by 75 cents the average estimate of 10 analysts surveyed by Bloomberg. MGIC, led by Chief Executive Officer Curt Culver, has plunged 55 percent this year, compared with the 57 percent decline at Philadelphia-based Radian and a fall of 66 percent at PMI.
Progress Needed
“There is a growing sentiment that the mortgage insurers need to show better progress toward profitability if investors are going to believe that further capital raises are not needed,” KBW Inc. analysts led by Nathaniel Otis wrote in a note to investors on July 12.
MGIC’s cost of claims from mortgage defaults rose 44 percent to $459.6 million. The number of so-called cures, in which insured borrowers caught up on payments, dropped to 35,832 from 47,290.
Book value per share, a measure of assets minus liabilities, dropped to $7.52 a share, compared with $8 on March 31. The insurer had an investment gain of $21.7 million, compared with $31.7 million a year earlier.
Premium revenue slipped 8 percent to $284.5 million. Stricter loan standards have meant less new business for mortgage insurers and less revenue to cushion losses from foreclosures.
Claims, Expenses
MGIC spent $1.78 on claims and expenses at its mortgage business for every dollar it collected in premium. The ratio worsened from $1.19 a year earlier.
Federal regulators are working to shrink the role of government-backed mortgage insurers, which took on greater market share in the housing slump. U.S. Treasury Secretary Timothy F. Geithner has called for reducing the number of loans the Federal Housing Administration can insure and increasing the price of coverage.
The prospect of private mortgage insurers becoming a bigger part of the housing market “is kind of the one bright spot on the horizon,” LeBas said. “They have the potential to take on a lot of new business. But that’s likely several years down the road. 2015, I’d say, is probably an optimistic time.”
FHA insurance covers about 30 percent of U.S. mortgages, compared with historical rates of about 10 percent to 15 percent, Geithner and Housing and Urban Development Secretary Shaun Donovan wrote in a February report.
--Editors: Dan Kraut, Steve Dickson
To contact the reporter on this story: Brooke Sutherland in New York at bsutherland5@bloomberg.net
To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net
