Bank of America Corp. has stopped doing business with MGIC Investment Corp., the mortgage insurer it sued last month for rejecting $100 million of claims on defaulted loans.
In addition to one of its largest customers, MGIC also lost $280.1 million in the fourth quarter, the Milwaukee company said Tuesday. It was MGIC's tenth straight quarter in the red. Nevertheless, its stock rallied on signs of stabilization in the results.
MGIC, the largest mortgage insurer by policies in force, expects to lose more business from customers that "have differences of opinion relative to business matters," its chairman and chief executive, Curt Culver, said during a conference call with investors.
The dispute is over claims that Countrywide Financial Corp., which B of A acquired in 2008, submitted to MGIC in 2008 and 2009. B of A has alleged that in refusing to pay the claims, MGIC "has adopted unreasonable interpretations of its mortgage insurance policy language" to save itself from steep losses.
"The rescission practices disputed by Countrywide are no different than our general rescission practices," Culver said. "And we have not changed our general rescission practices in response to the lawsuit."
B of A, which accounted for about 8% of the coverage MGIC wrote during the first nine months of last year, offered no comment by press time.
MGIC also said it expects new insurance volume, which has fallen sharply over the past several quarters, to be flat this year, as loan originations decline further.
But the company's report wasn't all doom and gloom.
Claims paid and reserves for new claims fell 2.5% from a year earlier, to $880.9 million, helped by an increase in rescissions. And while the delinquency rate of MGIC's portfolio climbed to 15.46% at Dec. 31 from 9.51% a year earlier, the growth rate in the number of delinquent loans slowed from 11% in the third quarter, to 6.3% last quarter.
Notices of new defaults also dropped 21% from a year earlier, to 61,114.
Culver said he expects credit trends to improve.
"We expect the real estate markets to stabilize in 2010 and, as a result, our delinquencies should moderate and there should be an inventory reduction at yearend 2010," Culver said, adding that he expects rescission activity to again be strong this year.
The net loss of $2.25 per share widened from $275.6 million, or $2.23 per share, a year earlier. MGIC shares rose as much as 18% Tuesday and ended the session 9.5% higher at $6.64 a share.