MGIC Credit Swaps Soar as Insurer Posts Biggest Loss Since 2009

The cost to protect the debt of MGIC Investment Corp. (MTG) jumped as the mortgage insurer reported its biggest net loss since 2009 and its eighth consecutive unprofitable quarter.

Credit-default swaps tied to MGIC increased 8.1 percentage points to 39.4 percent upfront, 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 $3.94 million initially and $500,000 annually to protect $10 million of the company’s debt for five years.

MGIC, which hasn’t reported a profit since the second quarter of 2010, said that its net loss for the period ended June 30 was $273.9 million, widening from a loss of $151.7 million a year earlier, the Milwaukee-based company said today in a statement distributed by PR Newswire. That’s the largest quarterly loss for the mortgage insurer since it forfeited $280.1 million in the fourth quarter of 2009, according to data compiled by Bloomberg.

Mortgage insurers pay lenders when homeowners default and foreclosures fail to recoup costs.

Credit-default swaps typically rise as investor confidence deteriorates and fall as it improves. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

To contact the reporter on this story: Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net