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Barclays upgraded Exxon Mobil Corporation (NYSE: XOM) from Underweight to Equal-weight. The price target for Exxon Mobil has been raised from $80 to $85. Exxon Mobil shares closed at $79.29 on Friday. Analysts at Citigroup upgraded Goldman Sachs...
Benzinga  Aug 10  Comment 
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TheStreet.com  Jul 16  Comment 
NEW YORK (TheStreet) -- Shares of MGIC Investment were falling 1.22% to $11.34 Thursday morning after the insurance company missed analysts' estimates for revenue in the second quarter. MGIC reported revenue of $243.1 million for the second...


Based in Milwaukee, Wisconsin, MGIC Investment Corporation (MTG) is the largest private mortgage insurer in the U.S., offering private mortgage insurance across the country, the District of Columbia, and in Puerto Rico through its subsidiary, Mortgage Guaranty Insurance Corporation. MGIC Investment Corporation primarily covers single-family, first-time mortgage loans by providing primary insurance to cushion lenders against non-payment on individual loans and expand home ownership opportunities by enabling people to purchase homes with smaller down payments. MGIC Investment also offers pool insurance (coverage over and above primary coverage) in the secondary mortgage market on low down payment loans, mainly to Fannie Mae and Freddie Mac (Government Sponsored Enterprises). Through its other operating subsidiaries, the company provides ancillary financial services such as contract underwriting, portfolio retention, mortgage loan origination, and fulfillment services. In 2006, premiums earned accounted for 80.8% of the company's $1.47 billion revenue. Investment income and other sources and gains accounted for the remaining 16.4% and 3.1% of revenue, respectively, with realized investment curtailing total revenues by 0.3% for the year.

Our main concern going forward for MGIC is the impact that mortgage insurance (MI) avoidance products, known as piggyback loans, will have on insurance in force growth. Lenders have been offering a second mortgage as an alternative to mortgage insurance for purchasers with a down-payment of less than 20% of the value of the property. The first mortgage is the 80% LTV required to avoid mortgage insurance. The second mortgage is a 10% LTV and is used by the borrower to pay the balance of the 20% down payment on the first mortgage, which the borrower did not initially have. Because these products are attractive to banks and lenders (they receive two loan origination fees), and borrowers (interest on the second mortgage is tax deductible mortgage insurance premiums are not) we believe piggyback loans and other mortgage insurance avoidance products will continue to gain popularity and erode the market share of traditional mortgage insurance. While MTG management has stated that about 30-40% of the industry's business has been lost to these alternatives, this company as well as other mortgage insurers has retaliated by releasing new products and coaxing the congress for the tax deductibility of mortgage insurance premiums. Though positive, we still think it may take some time to stem the outflow of business to MI avoidance products.

We also have concerns regarding the seasoning of insurance in force at MGIC. The majority of MGIC's insurance in force was written after 2000. Since mortgage insurance losses typically peak on an average of about 3 years after the origination of business, MGIC could see increasing delinquency rates going forward.

During the third quarter, the company experienced a substantial increase in the incurred losses expense. We are concerned about the general negative and building trends within the economy with respect to the housing markets. With the slowdown in home sales, economic down-turn pressures in select markets, as well as the rise in mortgage delinquencies and default rates we would not anticipate improvement in the level of losses incurred or the total loans delinquent over the near term on the contrary we expect losses to increase, going further.

On November 21, 2007, Standard & Poor's Rating Services lowered its counterparty credit rating on MGIC Investment Corp. to "A-" from "A", citing the potential for outsized losses. The rating downgrade could have an adverse material effect on the company's operations. The company also decreased its dividend by 90% in the current quarter.

To ramp up revenues and control payouts, the company has made plans to raise prices and limit its coverage of loans (made without proof of income or to people with low credit scores). We are of the opinion that the changes could cost the company some of its market shares before it could reap the benefits.


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