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MGIC Credit Swaps Soar as Insurer Posts Biggest Loss Since 2009

Aug. 2 (Bloomberg) -- The cost to protect the debt of MGIC Investment Corp. 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

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