A plan by MGIC Investment Corp. (MTG) to continue selling
mortgage insurance appears to be in jeopardy, amid a tug-of-war
between its primary regulator and Freddie Mac (FMCC), one of its
major customers.
MGIC, plagued by billions of dollars in losses over the last
five years, had hoped to keep selling coverage in several key
states under a complicated plan that involved a new subsidiary. But
the company warned Wednesday that insurance regulators in Wisconsin
had objected to a provision in an agreement with Freddie Mac that
was essential to pulling off the plan.
The disclosure, buried in MGIC's so-called "risk factors" that
were included at the end of its second-quarter earnings, sent
shares of the mortgage insurer tumbling 57% to $1.06.
At issue, at least in part, was a demand by Freddie Mac that the
capital in the new subsidiary be available to pay claims on
policies sold by the existing one. The Wisconsin insurance
department, though, said the requirement doesn't recognize the
regulator's "authority and obligations."
MGIC has approval from Fannie Mae to sell coverage without that
condition, but it warned "lenders may not know which GSE will
purchase their loans until loan origination is complete," which
could mean "lenders may be unwilling to procure mortgage insurance"
from the new subsidiary in the states where it operates.
"Furthermore," the company warned, "if we are unable to write
business on a nationwide basis utilizing a combination of MGIC and
MIC, lenders may be unwilling to procure insurance from us
anywhere."
Representatives for MGIC and Freddie Mac had no immediate
comment.
-Andrew R. Johnson contributed to this article.
Write to Erik Holm at erik.holm@dowjones.com
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