Mgic Investment Corp
MGIC Investment Corporation is a holding company which, through its wholly owned
subsidiary Mortgage Guaranty Insurance Corporation (“MGIC”), is the leading provider
of private mortgage insurance in the United States to the home mortgage lending
industry. Private mortgage insurance covers residential first mortgage loans and
expands home ownership opportunities by enabling people to purchase homes with
less than 20% down payments. If the homeowner defaults, private mortgage insurance
reduces and, in some instances, eliminates the loss to the insured institution.
Private mortgage insurance also facilitates the sale of low down payment and other
mortgage loans in the secondary mortgage market, including to the Federal National
Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation
(“Freddie Mac”) (Fannie Mae and Freddie Mac are collectively referred to as the
“GSEs”). In addition to mortgage insurance on first liens, the Company, through
other subsidiaries, provides lenders with various underwriting and other services
and products related to home mortgage lending.
Primary Insurance. Primary insurance provides mortgage default protection on
individual loans and covers unpaid loan principal, delinquent interest and certain
expenses associated with the default and subsequent foreclosure (collectively,
the “claim amount”). In addition to the loan principal, the claim amount is
affected by the mortgage note rate and the time necessary to complete the foreclosure
process. The insurer generally pays the coverage percentage of the claim amount
specified in the primary policy, but has the option to pay 100% of the claim
amount and acquire title to the property. Primary insurance generally applies
to owner occupied, first mortgage loans on one-to-four family homes, including
condominiums. Primary coverage can be used on any type of residential mortgage
loan instrument approved by the mortgage insurer. References in this document
to amounts of insurance written or in force, risk written or in force and other
historical data related to MGIC’s insurance refer only to direct (before giving
effect to reinsurance) primary insurance, unless otherwise indicated.
Pool Insurance. Pool insurance is generally used as an additional “credit enhancement”
for certain secondary market mortgage transactions. Pool insurance generally
covers the loss on a defaulted mortgage loan which exceeds the claim payment
under the primary coverage, if primary insurance is required on that mortgage
loan, as well as the total loss on a defaulted mortgage loan which did not require
primary insurance. Pool insurance may have a stated aggregate loss limit and
may also have a deductible under which no losses are paid by the insurer until
losses exceed the deductible.
Risk Sharing Arrangements. MGIC’s products include risk sharing arrangements
with the GSEs and captive mortgage reinsurance in which an affiliate of a lender
reinsures a portion of the risk on loans originated or purchased by the lender
which have MGIC primary insurance.
Bulk Transactions. In bulk transactions, the individual loans in the insured
portfolio are insured to specified levels of coverage. The premium in a bulk
transaction, which is negotiated with the securitizer or other owner of the
loans, is based on the mortgage insurer’s evaluation of the overall risk of
the insured loans included in the transaction and is often a composite rate
applied to all of the loans in the transaction.
Customers
Originators of residential mortgage loans such as mortgage bankers, savings
institutions, commercial banks, mortgage brokers, credit unions and other lenders
have historically determined the placement of mortgage insurance written on
flow basis and as a result are the customers of MGIC. To obtain primary insurance
from MGIC written on flow basis, a mortgage lender must first apply for and
receive a mortgage guaranty master policy (“Master Policy”) from MGIC.
Competition. For flow business, MGIC and other private mortgage insurers compete
directly with federal and state governmental and quasi-governmental agencies,
principally the FHA and, to a lesser degree, the Veterans Administration (“VA”).
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