CORRECT: MGIC Investment Swings To 2Q Loss As Mortgage Losses Jump

Shares of MGIC Investment Corp. (MTG) tumbled Monday after the company swung to a second-quarter loss as the private-mortgage insurer reported it incurred sharply higher losses on mortgages it insures.

MGIC, the largest mortgage insurer for both Fannie Mae (FNMA) and Freddie Mac (FMCC), had recorded a string of narrower losses recently as its claims losses declined, and investors had expected this trend to continue into the second quarter. Instead, average paid claims increased sequentially and the company's reserve for future claims increased by much more than analysts and investors anticipated.

Despite the disappointing numbers, Chief Executive Curt Culver said on the company's conference call that claim payments will begin declining.

"Assuming normal foreclosure patterns, we believe that the second quarter marks the peak quarter of claim payments," Culver said on the call.

Still, shares fell 24% Monday, to $4.57, down more than 55% year-to-date.

"Investors are questioning the visibility anyone has to the inflection point in losses," said Jack Micenko, analyst at Susquehanna International Group. Susquehanna had estimated that MGIC would take $5.7 billion in losses over about a four-year period. In just the past quarter, MGIC took about $1.2 billion in losses and reserves for future losses. "Either they're doing a good job accelerating losses, or else we were modeling it incorrectly," he said.

MGIC covers lender losses on loans typically given to borrowers who can't make a 20% down payment. Shares of companies that also offer mortgage insurance took a hit Monday, too, as MGIC is the first of the group to report results this earnings season. PMI Group Inc. (PMI) fell 13% to $1.11, Radian Group Inc. (RDN) declined 15% to $3.46 and Genworth Financial Inc. (GNW), which has a mortgage insurance unit even though its larger businesses include life insurance and asset management, lost 8% to $9.03.

"There are fears that they'll have similarly high paid losses -- and they will," said Michael Grasher, analyst at Piper Jaffray. "If you look at their [mortgage insurance] portfolios, they're all pretty much the same."

MGIC reported a loss of $151.7 million, or 75 cents a share, compared with a prior-year profit of $24.6 million, or 13 cents a share. The current period included an 11-cent per-share realized gain, while the prior-year results included a 17-cent gain. Revenue slid 9.7% to $367 million amid lower net premiums.

Analysts polled by Thomson Reuters most recently estimated earnings of 2 cents a share on $346 million in revenue.

The percentage of delinquent loans was 15.8%, compared with 17.59% a year earlier. Claims losses were $459.6 million, up sharply from $320.1 million a year ago.

Still, there were some positives in the results -- net insurance written was $3.1 billion for the second quarter, up from $2.7 billion during the same period last year. And Grasher said he sees MGIC turning profitable in 2012.

"Investors are so caught up in considering they may not be a survivor," Grasher said. "We see profitability in 2012. Are we too soon for that? Maybe, but I don't think so."

-By Corrie Driebusch, Dow Jones Newswires; 212-416-2143; [e-mail]

--Mia Lamar contributed to this article.