MGIC Investment Corp. (MTG:US), the mortgage insurer that breached regulators’ capital limits, surged the most in almost two months after saying hurdles to selling new policies had been lowered.
MGIC gained (MTG:US) 18 percent to close at $1.81 in New York, the biggest jump since Aug. 6. The Milwaukee-based firm’s shares have slid 51 percent this year.
The amount of capital MGIC needs to contribute to its main mortgage-insurance subsidiary was cut by half to $100 million, the company said in a Sept. 28 statement. An underwriting arm was approved by Freddie Mac to sell coverage in 16 jurisdictions excluding Wisconsin, pending resolution of a dispute between MGIC and the government housing-finance body, MGIC said.
“While there can be no guarantee that the open matters that remain can be successfully resolved, I am hopeful we will continue to make progress,” MGIC Chief Executive Officer Curt Culver said in the statement.
MGIC is conserving funds after eight straight quarters of losses from costs tied to soured home loans pushed the firm’s ratio of risk relative to capital above limits set by some state regulators. The firm last month said it would defer an interest payment on convertible debt for 10 years.
MGIC has until Oct. 31 to resolve a dispute with Freddie Mac over covered mortgages to maintain approval to continue selling policies, the firm said in the Sept. 28 statement. Mortgage insurers reimburse lenders when borrowers default.
Contracts protecting against the company’s default for five years decreased 4.2 percentage points to 26.1 percent upfront as of 3:30 p.m., according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. That’s in addition to 5 percent a year, meaning it would cost $2.61 million initially and $500,000 annually to protect $10 million of MGIC’s debt for five years, down from an initial payment of $3.03 million.
Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. The contracts, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decline as investor confidence improves and rise as it deteriorates.
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