The Company also said it is increasing its paid loss forecast for 2008 to $1.8 - $2.0 billion.
During the fourth quarter, the Company made a decision to stop writing the portion of its bulk business that insures loans which are included in Wall Street securitizations. The Company is analyzing the accounting implications of that decision on its fourth quarter results.
The Company is issuing this press release to provide current information to all investors in advance of its February 13, 2008 earnings call. The Company is not undertaking any obligation to update any information in this press release regarding the Company''s expectations or any forward-looking statements. No investor should rely on the fact that such information is current at any time other than the time at which this press release was issued.
About MGIC Investment Corporation
Mortgage Guaranty Insurance Corporation, the principal subsidiary of MGIC Investment Corporation (), is the nation''s leading provider of private mortgage insurance coverage with $197.0 billion primary insurance in force covering 1.3 million mortgages as of September 30, 2007. MGIC serves 5,000 lenders with locations across the country and in Puerto Rico, Guam and Australia, helping families achieve homeownership sooner by making affordable low-down-payment mortgages a reality.
Safe Harbor Statement Forward-Looking Statements and Risk Factors: --------------------------------------------
Our revenues and losses could be affected by the risk factors discussed below that are applicable to us, and our income from joint ventures could be affected by the risk factors discussed below that are applicable to Sherman. These risk factors should be reviewed in connection with this press release and our periodic reports to the Securities and Exchange Commission. These factors may also cause actual results to differ materially from the results contemplated by forward-looking statements that we may make. Forward-looking statements consist of statements which relate to matters other than historical fact. Among others, statements that include words such as we "believe", "anticipate" or "expect", or words of similar import, are forward looking statements. We are not undertaking any obligation to update any forward-looking statements we may make even though these statements may be
affected by events or circumstances occurring after the forward looking statements were made.
Deterioration in home prices in the segment of the market we serve, a
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downturn in the domestic economy or changes in our mix of business may result ----------------------------------------------------------------------------- in more homeowners defaulting and our losses increasing. --------------------------------------------------------
Losses result from events that reduce a borrower''s ability to continue to make mortgage payments, such as unemployment, and whether the home of a borrower who defaults on his mortgage can be sold for an amount that will cover unpaid principal and interest and the expenses of the sale. Favorable economic conditions generally reduce the likelihood that borrowers will lack sufficient income to pay their mortgages and also favorably affect the value of homes, thereby reducing and in some cases even eliminating a loss from a mortgage default. A deterioration in economic conditions generally increases the likelihood that borrowers will not have sufficient income to pay their mortgages and can also adversely affect housing values. Housing values may decline even absent a deterioration in economic conditions due to declines in demand for homes, which in turn may result from changes in buyers'' perceptions of the potential for future appreciation, restrictions on mortgage credit due to more stringent underwriting standards or other factors.
The mix of business we write also affects the likelihood of losses occurring. In recent years, the percentage of our volume written on a flow basis that includes segments we view as having a higher probability of claim has continued to increase. These segments include loans with LTV ratios over 95% (including loans with 100% LTV ratios), FICO credit scores below 620, limited underwriting, including limited borrower documentation, or total debt-to-income ratios of 38% or higher, as well as loans having combinations of higher risk factors.
As of September 30, 2007 approximately 6.0% of our primary risk in force written through the flow channel, and 72% of our primary risk in force written through the bulk channel, consists of adjustable rate mortgages in which the initial interest rate may be adjusted during the five years after the mortgage closing ("ARMs"). (We classify as fixed rate loans adjustable rate mortgages in which the initial interest rate is fixed during the five years after the mortgage closing.) We believe that during a prolonged period of rising interest rates, claims on ARMs would be substantially higher than for fixed rate loans. Moreover, even if interest rates remain unchanged, claims on ARMs with a "teaser rate" (an initial interest rate that does not fully reflect the index which determines subsequent rates) may also be substantially higher because of the increase in the mortgage payment that will occur when the fully indexed rate becomes effective. In addition, we believe the volume of "interest-only" loans (which may also be ARMs) and loans with negative amortization features, such as pay option ARMs, increased in 2005 and 2006 and have remained at these levels during the first half of 2007, before declining in the second half of 2007. Because interest-only loans and pay option ARMs are a relatively recent development, we have no meaningful data on their historical performance. We believe claim rates on certain of these loans will be substantially higher than on loans without scheduled payment increases that are made to borrowers of comparable credit quality.
The amount of insurance we write could be adversely affected if lenders
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and investors select alternatives to private mortgage insurance. ----------------------------------------------------------------
These alternatives to private mortgage insurance include: