MGIC Declines as Mortgage Insurer’s Loss Widens
MGIC Investment Corp. (MTG), the mortgage insurer that breached regulators’ capital limits, declined after reporting a ninth-straight loss. The company said it will pay $267.5 million to resolve a dispute with Freddie Mac.
The third-quarter net loss widened to $246.9 million from $165.2 million a year earlier as claims costs rose, MGIC said today in a statement. The results don’t include losses from resolving the clash with Freddie Mac over coverage on groups of loans, according to the statement.
The results were “disappointing,” Jasper Burch, an analyst at Macquarie Group Ltd., wrote in a note to clients. “Litigation remains a material overhang to the stock.”
MGIC said last month that it reached a preliminary deal with Freddie Mac to resolve a dispute over how much coverage the firm must provide on groups of loans it insured for the government-sponsored purchaser of mortgages. The agreement calls for a $100 million initial payment to McLean, Virginia-based Freddie Mac, with the remainder to be paid over 48 monthly installments, MGIC said in a regulatory filing today.
The insurer said in August it had breached the 25-to-1 ratio of risk relative to capital that some state regulators require to permit the company to sell new coverage. Under the deal, Freddie Mac would allow an MGIC unit to cover loans it buys in states that have the capital rules. The deal requires the blessing of Wisconsin’s insurance regulator to make capital from that unit available to cover claims on older policies.
Mortgage insurers cover losses when homeowners default and foreclosures fail to recoup costs. Rivals including Old Republic International Corp. (ORI), PMI Group Inc. and Triad Guaranty Inc. have been pushed from selling new coverage by mounting losses.
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