Prepayments, Troubled Loans Sink MGIC

The company sees second-quarter profits fall as delinquent loans spike.
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Second-quarter profits skidded at mortgage insurer

MGIC Investment

(MTG) - Get Report

as low interest rates spurred mass refinancings and the weak economy led to a spike in defaults.

Milwaukee-based MGIC earned $143.8 million, or $1.46 a share, on revenue of $459.6 million in the second quarter, compared with earnings of $170.9 million, or $1.61 a share, on revenue of $383.8 million last year. Revenue jumped because of a 17% rise in net premiums earned to $337.1 million.

The company earns money from the volume of mortgages it insures, and is hurt by both defaults and prepayments, the latter of which impairs what it calls the "persistency rate" of policies in effect. At the end of the second quarter, that rate was 49.8%, compared with 56.8% at Dec. 31, 2002, and 59.5% at June 30, 2002.

Meanwhile, the percentage of loans that were delinquent, excluding bulk loans, was 3.38% at quarter's end, up from 3.19% at Dec. 31, 2002, and 2.55% at June 30, 2002. That helped send second-quarter losses skyrocketing to $173.1 million from $64.4 million a year ago.