MGIC Investment Corp., the nation's largest private mortgage insurer, said Thursday that it expects to break even on the policies it wrote in the first quarter, but that profitability will improve and next year's crop of loans will be an "outstanding vintage."
The Milwaukee company reiterated its belief that delinquencies in its overall portfolio will peak this year, but it conceded that the peak might not come until the first quarter of next year.
MGIC said that its second-quarter loss almost tripled from the previous quarter, to $97.9 million. (It earned $76.7 million in the second quarter of last year.) Claims costs fell 0.5%, to $688.1 million, but a recovery recognized against reserves for a discontinued line of business shrank.
Curt Culver, MGIC's chairman and chief executive officer, reiterated its projection of $1.8 billion to $2 billion for paid claims this year.
However, "it now looks like we will be at the lower end of the range," he said on a conference call.
"The reality is that the pace of paids has been slowed due to various state and lender foreclosure moratoriums, servicing delays, fraud investigations, mitigation opportunities, and the lack of capacity of our court system."
Historically, MGIC has thought delinquencies would peak this year, Culver said. "Now whether or not that happens a quarter later or not, we think technically they'll peak this year. It may be a quarter later," he said. "Whether or not we have slowed the acceleration of delinquencies will be an event that we will see in the third and fourth quarters."
Culver said the policies written in the first quarter "will be the least profitable" of the ones written this year. "You still had an overhang of the '07 guidelines that we committed on, as a company and as an industry. The '09, I think, will be an outstanding vintage for the industry," because of underwriting changes. "We'll have at least 20% price increases on all that business, some higher than that."
He also said he expects policies written in 2010 to be even more profitable. MGIC has been denying more claims, Culver said, but it has not stepped up its vetting efforts. "What we're doing is not out of line with what we've always done. We've always enforced the policy."
During the second quarter the number of denials more than doubled from a year earlier, to 294, and the amount of claims denied roughly tripled, to $23 million.
"It is up but it's not as though we're looking for these in more detail than we always had," he said. Rather, "we had a number of loans that were done with reduced documentation that have just opened themselves up for more investigation."
MGIC's position in the market remains strong, Culver said, even though its May market share fell two percentage points from the first quarter, to 23.6%. "There's a lot of noise that goes on in monthly market share," but "we continue to do quite nicely even with all the pricing increases and the underwriting changes that we've put in place."
Shares of MGIC surged almost 40% Thursday, outstripping the double-digit gains for Fannie Mae and Freddie Mac, the primary beneficiaries of mortgage insurance.
The two government-sponsored enterprises requested "remediation plans" from several insurers, including MGIC, after the insurers lost double-A ratings from at least one rating agency. Culver said his company's talks with the GSEs "relative to our remediation plans have been positive, with Freddie Mac announcing their approval of our plan, while Fannie Mae has not yet completed their review."