Investment Corp. Shares Plunge After it Says Claims Could Reach $2B in 2008

January 24, 2008

Shares of MGIC Investment Corp. plummeted more than 30 percent, striking a 15-year low, after the nation’s largest mortgage insurance company said paid losses could reach $2 billion this year.

The Milwaukee-based company had said payouts could be as high as $1.5 billion in 2008, but raised that to a range of $1.8 billion to $2 billion late Tuesday citing fresh delinquencies and growing claim sizes.

Shares of MGIC fell $5.07, or 31.59 percent, to $10.98 in trading early Wednesday. Shares sank to $10.45 in earlier trading, marking their lowest point since 1992. Shares have traded as high as $70.10 in the past 52 weeks.

Homebuyers typically must have mortgage insurance when they put down less than 20 percent of their home’s value. When borrowers miss payments, as more have been doing, the insurers pay lenders. If homes end up in foreclosure, lenders and insurers lose money.

By the end of 2007, MGIC said it had 107,120 delinquent loans, an increase of about 16,000 delinquencies from the end of the third quarter. At the end of 2007, MGIC had $211.7 billion in insurance in force.

The company said fewer homes that were delinquent are resuming payments, so there are now a higher percentage of delinquent loans that become claims, which are rising in size, the company said.

MGIC is due to announce its fourth quarter earnings on Feb. 13 and will provide more specifics, spokeswoman Katie Monfre said.

The industry is facing rising claims as homeowners struggle to make payments amid fluctuating interest rates and a souring economy. Last month, MGIC said it had paid $586 million in claims through the first part of November. The company predicted then it would pay $875 million for 2007. A final figure will be released with earnings next month.

Payouts were $611 million in 2006.

MGIC said previously it did not expect to turn a profit for the last quarter of 2007 or for this year.

Mortgage insurers have tried increasingly to limit their exposure with predictions that defaults will only broaden in the United States. Last month, MGIC said it would limit coverage for borrowers with poor credit and higher risk loans. The company said it would charge more for some loans in soft markets like Florida and California.


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