MILWAUKEE - Mortgage insurer MGIC Investment Corp. said it's looking for ways to boost capital after announcing it lost almost $1.5 billion in the fourth quarter as more homeowners struggled to make payments.
The nation's largest mortgage insurer still doesn't see making money this year, if delinquencies and losses continue to rise and fewer homeowners get back on track with payments, chairman and chief executive Curt S. Culver said.
The news sent the Milwaukee-based company's shares down more than 11 percent Wednesday.
MGIC said it lost $1.47 billion, or $18.17 per share, in the three months ending Dec. 31, compared with a profit of $121.5 million or $1.47 per share in the same period a year ago.
The loss includes $1.2 billion the company set aside to create a reserve relating to future losses from Wall Street bulk business.
A survey by Thomson Financial indicates Wall Street analysts had expected the company to lose, on average, $6.77 per share. Those estimates typically exclude one-time items.
The company said it has hired an advisor to assist it in exploring alternatives for increasing its capital, though Culver said MGIC has enough money to pay claims.
MGIC has been limiting its exposure to weaker housing markets by demanding higher credit scores and larger down payments in harder-hit areas such as California and Florida.
The company acknowledged in a regulatory filing last week that such changes could mean fewer new policies written, but Culver told analysts on a conference call Wednesday the changes would protect MGIC's future.
"The business we'd lose from doing that is business better lost than insured by our company," Culver said.
MGIC said late last month that it could pay up to $2 billion in claims this year, up from previous estimates of up to $1.5 billion. It finished 2007 paying out $870 million in claims, up from $611 million in 2006.
Home buyers typically must get mortgage insurance when they put down less than 20 percent of their home's value. When they miss payments, the insurers pay lenders. If homes end up in foreclosure, both lenders and insurers lose money.
Stuart Plesser, an equity analyst with Standard & Poor's, said in a research note he felt the company had enough capital. He maintained his sell recommendation on the stock.
Revenues for the fourth quarter were $399.1 million, up 8.7 percent from $367.2 million in the last three months of 2006. The company increased its net premiums written for the quarter nearly 25 percent to $380.5 million, up from $367.1 million in the same quarter in 2006.
Its shares fell $1.57, or 11.1 percent, to $12.61 Wednesday. Its shares are near the lower end of their 52-week range of $10.40 to $67.41.
MGIC finished 2007 with a loss of $1.67 billion, or $20.54 a share. In 2006, MGIC earned $564.7 million, or $6.65 a share. For the year, revenues rose to $1.69 billion, from $1.47 billion in 2006. New insurance written was $76.8 billion, compared to $58.2 billion in 2006.
MGIC had $211.7 billion primary insurance in force at the end of 2007, compared with $176.5 billion the previous year.
MGIC has been changing its underwriting standards for months, and more changes will go into effect starting March 3. From then on, the company will require at least 5 percent down on homes and 10 percent on condos in so-called restricted markets. They include the entire states of Arizona, California, Florida and Nevada and major metro areas such as Washington, D.C., Detroit, Chicago, Boston and Atlanta.
Culver told analysts the changes will reduce losses but they won't get rid of them.
"We feel they are not enough to help us return to profitability in a market where real estate values are declining," he said.
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