MGIC Struggles for Viability & Relevance (MTG, PMI, MBI)

MGIC Investment Corporation (NYSE: MTG) is one of the troubled mortgage insurers which we routinely worry about for both viability and relevance.  This morning’s earnings report does nothing to ease those fears.

The company reported earnings of -$0.75 EPS on a near 10% drop in revenues to $367 million.  Thomson Reuters had estimates of $0.13 EPS and $351.6 million in revenues.  The net loss came to $151.7 million for the quarter versus net income of $24.6 million in the same quarter a year ago; new insurance written in Q2 was $3.1 billion versus $2.7 billion a year earlier.

MGIC did note, “the Home Affordable Refinance Program (HARP) accounted for $583.1 million of insurance that is not included in the new insurance written total for the quarter due to these transactions being treated as a modification of the coverage on existing insurance in force.”

The banks and credit card companies might be reporting that delinquencies and charge-offs continue to improve, but it turns out that if you need to carry mortgage insurance it seems you really have to have mortgage insurance.  The company’s June 30 delinquent loan rate, outside of its bulk loans, was 13.4%.  The good news is that was nearly 15% delinquent at the end of 2010 and a year ago.  If you tally in the bulk loans then the June 30 rate is 15.80% delinquent versus an average of about 17.5% at the end of 2010 and a year ago.

Losses incurred during the second quarter were $459.6 million versus $320.1 million in the same quarter a year ago, “due to new notices exceeding cures.”  MGIC also said that its net quarterly underwriting and other expenses were $54.0 million versus $54.1 million a year earlier.

When a company has delinquency rates this high, how can it possibly make money?  Even with the improvements seen it could be many quarters out before profits are seen again.

We already saw the banks trade at a discount to book value, and they are profitable.  MGIC listed its book value per shares at $7.52 as of June 30.  That figure was $8.33 per share one quarter back and $9.84 a year ago.

MGIC shares closed at $6.00 on Friday and shares just opened down about 9% at $5.47 this morning.  At 9:36 AM EST we have shares at $5.50 and the 52-week trading range is $5.41 to $11.79.

PMI Group Inc. (NYSE: PMI) is down 6.3% at $1.19 in sympathy against a 52-week range of $1.01 to $4.68.  MBIA Inc. (NYSE: MBI) may have rallied on reports of a BofA settlement last week, but its shares are down 3.2% at $9.87 this morning.

JON C. OGG