MGIC Reaches Preliminary Freddie Mac Agreement

MGIC Investment Corp. (MTG), the mortgage
insurer that breached regulatory capital limits, reached a
preliminary deal with Freddie Mac to resolve a coverage dispute
that threatened to prevent the firm from backing some loans.

MGIC will make payments to Freddie Mac over four years
under the arrangement, which requires approval from boards of
both firms, the Milwaukee-based insurer said today in a
statement. The firms must still agree on matters “significant
to final resolution,” according to the statement.

MGIC faced a deadline today to reach an agreement with
Freddie over how much coverage the firm must provide on groups
of loans it insured for the government-sponsored mortgage bond
guarantor. Freddie had said the limit should be $535 million
higher than MGIC’s target. That would have increased the firm’s
losses in the first six months of 2012 by $85 million, MGIC said
in a quarterly filing.

“Any settlement of our dispute with Freddie Mac regarding
the interpretation of certain pool policies will negatively
impact our statutory capital and, depending on the amount, could
exacerbate materially the current non-compliance with capital
requirements,” MGIC said in the August filing.

MGIC hadn’t set aside reserves for a settlement with
Freddie as of Aug. 2, Chief Executive Officer Curt Culver said
on a conference call with analysts that day.

State Regulators

The insurer said in August it had breached the 25-to-1
ratio of risk relative to capital that some state regulators
require to permit the company to sell new coverage. It deferred
payment on convertible bonds in September to conserve capital.
MGIC has received waivers of the risk limit to allow it to keep
selling policies in some states.

MGIC has declined 54 percent this year as losses from
soured home loans drained capital and threatened the firm’s
ability to sell new coverage. Rivals including Old Republic
International Corp. (ORI)
, PMI Group Inc. and Triad Guaranty Inc. have
been pushed from selling new coverage by mounting losses.

The company reported a net loss in the first six months of
this year of $293.4 million. It said in today’s statement that
third-quarter results are scheduled to be announced Nov. 9. The
firm had $6 billion of cash and investments as of June 30, down
from $7.8 billion a year earlier.

To contact the reporter on this story:
Zachary Tracer in New York at

To contact the editor responsible for this story:
Dan Kraut at

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