The parent company of Mortgage Guaranty Insurance Corp. lost $34.4 million in the first quarter, but investors were cheered that revenues grew 14.7 percent from a year ago, to $423.9 million, and that the company is raising capital to restore the financial strength rating it needs to continue writing new insurance.
New insurance written in the first quarter by MGIC totaled $19.1 billion, up 50.4 percent from $12.7 billion a year ago, the company said in a regulatory filing. Persistency — the percentage of insurance remaining in force from a year ago — also increased to 77.5 percent as of March 31, compared with 70.3 percent at the same time last year.
Although parent company MGIC Investment Corp. posted a loss of 41 cents per share for the quarter — compared with earnings of $1.12 per share in the first quarter of 2007 — investors welcomed the better-than-projected increase in revenue, sending the company’s share price up more than 15 percent in midday trading.
MGIC Investment Corp. reported a $1.67 billion loss for all of 2007 as it was forced to pay claims and bad loans and boost reserves for future losses. MGIC officials said at the time they expected the company to remain in the red in 2008, but would remain adequately capitalized to pay claims.
Last week analysts at Standard & Poor’s downgraded the financial strength ratings of MGIC, Radian Group Inc. and PMI Group Inc., saying that worsening housing market conditions could increase future claims and that the companies no longer meet the criteria for AA- ratings Fannie Mae and Freddie Mac require of "top tier" insurers (see Inman News story).
MGIC officials said today that the company has taken "numerous actions designed to bolster its financial strength" including increasing capital resources by $840 million through the sale of securities. The company has also tightened underwriting guidelines, discontinued writing Wall Street bulk transactions, increased pricing, and is pursuing reinsurance options.
Those moves, and similar actions by competitors, have added to the credit crunch by making it harder for home buyers to obtain private mortgage insurance, which is usually required when borrowers make down payments of less than 20 percent.
MGIC, Radian and PMI now require down payments of at least 3 percent in all markets — the same requirement for Federal Housing Administration loan guarantee programs.
In eliminating "Above 97" loan-to-value ratio loans, PMI said the default rate on such loans had risen to 9.1 percent at the end of 2007. PMI won’t insure loans with down payments of less than 10 percent in "distressed markets" where prices have been falling, and requires a minimum FICO score of 620 or better in those areas (see story).
In March, MGIC stopped insuring loans with down payments of less than 5 percent in 30 restricted markets. The restricted markets include four entire states — California, Florida, Arizona and Nevada — and 26 markets in 18 other states where home prices are falling (see story).
Radian will no longer insure "alt-A" stated-income, stated-asset loans after April 30, and the company has also identified declining markets where tighter underwriting standards are in force, such as 90 percent maximum loan-to-value ratio for condominiums or co-ops (see story).
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