The results badly missed Wall Street expectations. The average loss estimate of seven industry analysts polled by Yahoo Finance was 56 cents. MGIC said losses incurred in the second quarter were $551.4 million, up from $459.6 million, largely because of an increase in claims. MGIC pays lenders part of their costs when borrowers default on mortgages.
The loss for the first six months of 2012 widened to $293.4 million, or $1.45 a share, from $185.4 million, or 92 cents, in the first half of 2011. MGIC also disclosed Thursday that mortgage buyer Freddie Mac is requiring it to add $200 million in capital to beef up reserves. The company said it has the cash to do that.
Curt S. Culver, MGIC's chairman and chief executive, called it "a difficult quarter."
"Our company's capital position and financial results continue to be adversely affected by the lackluster economic recovery the country continues to experience, and particularly the lack of meaningful job creation," Culver told stock analysts on a conference call.
Foreclosures still high
Jim Ryan, an analyst with Morningstar Inc. in Chicago, said he thinks management has done all it can, but that MGIC is caught in a "terrible situation" as unemployment and foreclosures remain high.
"I wish I could see some kind of way out, but until we get some job growth and a better economy, I think the outlook is bleak for every mortgage insurer," Ryan said.
MGIC is required to obtain waivers from some states to sell new mortgage insurance if its risk-to-capital ratio no longer meets a certain standard. That ratio now is out of line with standards, and the company is unable to get waivers in some states.
Second subsidiary
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But three years ago, MGIC set up a second mortgage insurance subsidiary that would allow it to keep issuing new policies if its old subsidiary's risk-to-capital ratio got too high and it couldn't obtain waivers. As of Aug. 10, MGIC expects to begin writing new business through the second subsidiary for the first time.
Executives said MGIC has enough money to pay claims that are coming in. Nonetheless, Freddie Mac, in addition to requiring MGIC to put $200 million more in capital into its old mortgage subsidiary, is mandating that the company agree to use some of the $440 million in capital from the new subsidiary to backstop claims against the old one if necessary.
Freddie Mac also is requiring MGIC agree to settle a lawsuit against it over whether MGIC must pay claims on some groups of policies.
Source:
(c)2012 the Milwaukee Journal Sentinel
