MGIC Investment Corp. has filed a lawsuit in Federal Court in Milwaukee against Freddie Mac and its conservator, the Federal Housing Finance Agency, over the pool insurance dispute between the two companies.
In a press release, MGIC said it would not comment on the suit, but did quote from a communication it said it sent to Freddie Mac which said despite filing the lawsuit, the mortgage insurer is still willing to settle out of court. But it could not accept the terms on which the GSE was willing to continue discussions.
Freddie Mac said it does not comment on litigation.
Meanwhile, MGIC intends to conduct business as usual with Freddie Mac and that it hopes Freddie agrees this approach makes sense.
MGIC's first-quarter earnings press release discusses the dispute. The parties disagree on the amount of the aggregate loss limit under certain pool insurance policies.
"We believe the initial aggregate loss limit for a particular pool of loans insured under a policy decreases to correspond to the termination of coverage for that pool under that policy while Freddie Mac believes the initial aggregate loss limit remains in effect until the last of the policies that provided coverage for any of the pools terminates.
“The aggregate loss limit is approximately $535 million higher under Freddie Mac's interpretation than under our interpretation."
The difference in interpretation had no financial impact on MGIC until the second quarter of last year.
MGIC said its incurred losses would have been $192 million and $49 million higher, respectively, had they been recorded based on Freddie Mac's interpretation, and its capital and capital requirements would have been negatively impacted