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M.I. Usage, Premiums to Increase

M.I. Usage, Premiums to IncreaseMGIC presentation at FBR investor conference

November 30, 2007


As losses mount and the use of mortgage insurance grows, at least one major mortgage insurer plans to boost premiums.

MGIC Investment Corp. reported a third quarter loss of $372.5 million and projects 2008 paid losses of between $1.2 billion and $1.5 billion.

“The dislocation of the mortgage finance and housing markets had a material impact on the company’s financial results in the third quarter,” Chairman and Chief Executive Officer Curt S. Culver said in the company’s earnings release last month. “Despite this difficult operating environment, there have been significant improvements to the company’s business fundamentals, including higher persistency, increased use of mortgage insurance, insurance in force growth and improved credit standards.”

The Milwaukee-based company, which claims to be “the nation’s leading provider of private mortgage insurance,” introduced new underwriting criteria on Nov. 1, Culver said in an written presentation delivered at the FBR Capital Markets Investor Conference Wednesday.

In addition, he noted the company is implementing price increases for higher risk segments of the business.

Among those segments are mortgages with loan-to-values in excess of 95 percent, borrowers with “A-” credit and loans with reduced documentation, according to the presentation. Driving the higher premiums are higher persistency and increased mortgage insurance penetration.

Culver said MGIC is increasing loss mitigation efforts by hiring more counselors at its headquarters and onsite at servicers offices. It will also take advantage of short sale options, modifications and state funded outreach programs as well as non-profit organizations.

“Other adjustments, at this time, will be applied on case by case basis versus blanket policy adjustments,” the report said.

MGIC, which says it founded the mortgage insurance industry, reported a market share of 20 percent during the first nine months of this year, down from 25 percent in 2001.

The share of mortgage-backed securities backed by conforming loans, which had fallen to 45 percent in 2005 and 2006, has jumped to 57 percent for the first three quarters of this year. The share is projected to be 83 percent for the fourth quarter and 77 percent during 2008 and 2009.

In line with a bigger share of agency issuance, mortgage insurance penetration has gone from around 10 percent in 2005 to more than 17 percent in the latest quarter.

The Mortgage Insurance Companies of America today reported 175,383 policies were written for $26.3 billion by its members during October, compared to 159,719 policies for $28.9 billion in September. Primary insurance in force on Oct. 31 was $790.5 billion.

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