Genworth Posts Loss on Mortgage Insurance

Genworth Financial Inc. (GNW), the Richmond, Virginia-based insurer, reported a second-quarter loss on “worsening trends” in its mortgage-guarantee business. The shares fell after the announcement.

The net loss was $92 million to $112 million, or 19 to 23 cents a share, the company said yesterday in a preliminary earnings statement distributed by PR Newswire. The operating loss of 14 cents to 18 cents a share missed the average estimate of 24 cents by 14 analysts surveyed by Bloomberg. Net income was $42 million, or 8 cents, a year earlier.

Genworth posted its second loss in three quarters as homeowners fell further behind on their mortgage payments. The company added to reserves as it tallied more than 39,000 insured borrowers who had slipped into default by 12 or more payments. That’s an increase of about 7,000 from a year earlier.

“The older delinquencies are up,” said Steven Schwartz, an analyst at Raymond James & Associates Inc. “The older a delinquency, the more you have to reserve against it.”

Genworth slumped about 8 percent to $8.68 in extended New York trading following the announcement. It had declined 28 percent this year through yesterday.

Genworth, which also sells life insurance and retirement products, said it will use assets with a market value of $375 million to add to reserves in its U.S. mortgage-guarantee business. MGIC Investment Corp. (MTG), the biggest mortgage insurer, had a second-quarter loss as fewer borrowers caught up on overdue loans.

‘Worsening Trends’

Genworth said the boost in reserves “was the result of worsening trends” in mortgage insurance. It also cited “continuing weakness in the U.S. residential real estate market.”

The number of so-called cures, in which insured borrowers caught up on payments, dropped to 17,908 from 25,868 a year earlier, Genworth said. New delinquencies fell to 21,272 from 26,034.

Mortgage insurers reimburse lenders when homeowners stop paying and foreclosure fails to recoup costs.

Genworth, led by Chief Executive Officer Michael Fraizer, reported its first annual profit since 2007 last year as investments recovered from the credit crunch. The stock quadrupled in 2009.

Genworth’s international business had operating income of $105 million to $110 million in the second quarter. Operating income at the retirement and protection segment was $145 million to $150 million, the company said. Investment income rose 6 percent to about $880 million.

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Noah Buhayar in New York at nbuhayar@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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