MGIC Losses Mash Mortgage Sector

MGIC Investment (MTG Quote - Cramer on MTG - Stock Picks) plunged 11% after the mortgage insurer reported a big third-quarter loss and said it doesn't expect to return to profitability in the fourth quarter or 2008.

The comments spurred a ratings downgrade and sent shares across the mortgage insurance sector tumbling. Shares in Radian(RDN Quote - Cramer on RDN - Stock Picks), MGIC's partner in a merger that failed to close earlier this year, fell 11%, while MGIC and Triad Guaranty (TGIC Quote - Cramer on TGIC - Stock Picks) each fell 10% and PMI (PMI Quote - Cramer on PMI - Stock Picks) slid 8%.

For the three months ended Sept. 30, Milwaukee-based MGIC reported a loss of $372.5 million, or $4.60 a share, compared to a profit of $130 million, or $1.55 a share, in the year-ago quarter. Analysts had expected MGIC to earn 61 cents a share in the quarter.

MGIC attributed the loss to an after-tax writedown of $303 million from an impairment on its equity investment in Credit-Based Asset Servicing and Securitization, or C-Bass. C-Bass is a joint venture with Radian that invested in subprime mortgages. But the business swooned as the housing downturn worsened this summer and investors shunned mortgage-backed securities.

The company also recorded $11.3 million in pretax expenses over its failed merger with Radian, which was terminated in September, due to a decline in business and the C-Bass writedown. Offsetting the charges was a $106 million gain from MGIC's sale of a portion of its stake in a debt-recovery firm during the quarter.

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