Mortgage insurer MGIC Investment Corp. expects fourth-quarter losses to hit $1.3 billion and that the company will stay in the red this year as it pays out up to $2 billion in claims, up from a previous estimate of up to $1.5 billion.

MGIC said its year-end inventory of delinquent loans rose by nearly 18 percent from the end of the third quarter, to 107,120 loans.

Although that’s a small fraction of the 1.3 million loans insured as of the end of September by MGIC’s main subsidiary, Mortgage Guarantee Insurance Corp., deteriorating “cure” rates mean more of those delinquent loans are expected to become claims, MGIC officials said of their increased paid-loss forecast for 2008.

MGIC is also in the process of analyzing the implications of its decision to stop insuring large packages of loans that are bundled up as collateral for securities sold to Wall Street investors.

MGIC has said that nearly three quarters of its primary risk in force written through the so-called “bulk channel” consists of adjustable-rate mortgages with interest rates that adjust in five years or less, compared with 6 percent of loans insured on a case-by-case, or “flow,” basis.

Since MGIC announced a $372.5 million third-quarter loss in October, Standard & Poor’s has lowered the financial strength rating of its subsidiary, Mortgage Guaranty Insurance Corp., from “AA” to AA-, and Fitch Ratings has announced that it has placed MGIC’s AA rating under review.

Company officials said maintaining a rating of at least AA- “is critical to a mortgage insurer’s ability to continue to write new business.”

Analysts at Standard & Poor’s Ratings Services said last week they now believe mortgage and bond insurers could see losses 20 percent greater than predicted a month ago.

MGIC plans to release fourth-quarter and 2007 results Feb. 13.

***

Send tips or a Letter to the Editor to matt@inman.com, or call (510) 658-9252, ext. 150.

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