From: Reuters
Published February 13, 2008 03:50 PM

Mortgage woes sting insurer MGIC again

By Walden Siew

NEW YORK (Reuters) - MGIC Investment Corp <MTG.N>, the largest U.S. mortgage insurer, recorded another losing quarter on Wednesday, as the bond insurance industry continues to grapple with rising defaults in the U.S. subprime mortgage market.

Meanwhile turnaround specialist Wilbur Ross cast doubt on a bid by billionaire investor Warren Buffett on Tuesday to reinsure $800 billion of municipal bonds guaranteed by U.S. bond insurers.

"I don't think it will happen," Ross said on CNBC television, referring to the Buffett plan.

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MGIC reported a larger-than-expected $1.47 billion fourth quarter loss as more homeowners fell behind on payments, and claims increased sevenfold. The company, which said it also hired an adviser to help raise capital, expects to lose money this year unless the credit environment improves. Its shares fell $1.77, or 12.5 percent, to $12.39.

"Obviously, these financial results are unacceptable," Chief Executive Curt Culver said on a conference call.

Deteriorating U.S. mortgages resulted in MGIC and rivals Radian Group Inc <RDN.N> and PMI Group Inc <PMI.N> posting their first-ever losses in the third quarter last year. For all of 2007, MGIC lost $1.67 billion, or $20.54 per share, as claims nearly quadrupled to $2.37 billion from $613.6 million.

Milwaukee-based MGIC has been battered as borrowers have missed payments and investors have stopped buying a wide variety of debt perceived to carry too much credit risk.

"It now seems inevitable that the company will have to raise significant amounts of dilutive capital to preserve its 'double-A' (credit) rating and the long-term viability of the business," wrote Bruce Harting, an analyst at Lehman Brothers Inc. He rates MGIC "underweight."

ROSS AND BUFFETT

Buffett's offer to reinsure muni debt guaranteed by three bond insurers came under more criticism as Wilbur Ross said in a CNBC television interview he did not expect the proposal to go forward.

Buffett's bid has already been rejected by two of the three bond insurers he targeted, including Ambac Financial Group Inc <ABK.N>, the No. 2 bond insurer.

Still, Ross said the offer by Berkshire Hathaway Inc's <BRKa.N> chief executive to reinsure $800 billion of municipal debt guaranteed by bond insurers could put pressure on regulators and others to find another solution.

Ross said he will offer another plan in coming weeks that bond insurers may find more attractive, he said.

"We're making progress. We're getting through the due diligence," he said. "Municipal bondholders need a solution, and they will get a solution."

Bond insurer MBIA Inc <MBI.N> also plans to urge lawmakers and regulators to curtail short sellers in testimony in Washington on Thursday.

In the testimony, prepared for a February 14 hearing before the subcommittee of the U.S. House Committee on Financial Services, MBIA says the practice and dissemination of "half-truths and misleading information" should be "investigated and curtailed," according to a copy of written testimony obtained by Reuters.

"MBIA notes that Mr. William Ackman is appearing on the hearing on February 14th as an 'industry expert.' Mr. Ackman is in fact not involved in the industry in any capacity except as that of a short-seller, and, accordingly, MBIA questions the characterization of Mr. Ackman's expertise," the testimony says.

(Additional reporting by Jonathan Stempel, Dan Wilchins, Christian Plumb and Joseph A. Giannone)

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