Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Maybe there is something I missed, but I thought last year MGIC reported it had 1.6 Billion in reserves. And now its reporting loss's in excess of 2 Billion?  I wonder if the State of Wisconsin going to step in soon?  Or are the numbers I understand wrong? mmmmm

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Of course, you are CORRECT in your assessment that the recent report of MGIC's expected CLAIMS for 2007 -- in excess of $2 billion -- exceed their year end 2006 loss reserve of $1.1 billion (see .

You will note that this is also well in excess of their annual REVENUE for any YEAR to date.  Yearend shareholder equity at December 31, 2006, seems to have been $4.3 billion.  It would appear that MGIC will have some difficulty sustaining quarterly losses of $2 billion for very many quarters!      

In fairness to MGIC, this firm has ceded some risk on a compensated basis to several reinsurers (se eNote 7 on page 45).  But it appears that only about 10% of the risk in force.

Presumably, MGIC and the other primary mortgage insurers are now scrambling to find new capital.  It is unclear to me who is going to want to invest the capital necessary to shore up their balance sheet incondiseration of $50 billion in primary risk in force.

Unlike some others at this site who bear great hostility towards MGIC, I have nothing but generally fond memories of this firm.  Two decades ago there were a LOT of great people working there.  And MGIC was a real groundbreaker in developing the modern PMI model facilitating many of the post-WW II gains in homeownership.  It is unfortunate for both the company and its many fine employees that this firm seems to have lost its way!
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Bill in the early 80's I interviewed with MGIC on three occasions when I was a underwriter, each time the individual I interviewed with was gone, so I guess I was the kiss of death.  I told the same story to Curt Culver a few years ago when I tried to talk with him about the significant fraud going on at Litton Loan.  Baldwin ran them into the ground.
The point of my post was that the State of Wisconsin, now has an obligation to step in, I'm just waiting for that.

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Kozy Bedfellows
Ya really think Wisconsin is gonna, "STEP UP"??????

I highly doubt it.

Friday, Feb. 09, 1968

M.G.I.C.'s Magic

For decades after the Depression wiped out the loosely run mortgage-guaranty companies that flourished in the '20s, the Federal Government was the only source of insurance for home loans, chiefly through the Federal Housing Administration. Today, seven private companies are successfully challenging that monopoly. The oldest and by far the largest, Milwaukee-based Mortgage Guaranty Insurance Corp., has not only grown into a thriving concern with $50 million of assets and $3.5 billion of insurance in force, but has also spread its operations into 46 states, the District of Columbia, Canada and Australia.

That comeback by private enterprise is particularly impressive because, in the best of circumstances, it is virtually impossible for private business to gain a foothold in a field totally dominated by the Federal Government. In this case, the biggest part of the job was to beat the red-tape-ridden FHA at its own game. The door to competition was opened by FHA's rigid 6% ceiling on interest rates, which President Johnson last week asked Congress to abolish. In recurrent periods of tight money, banks and other lenders have increasingly shunned FHA and Veterans Administration loans to get higher interest rates on conventional mortgages. M.G.I.C. and other private firms not only approve any interest rate agreeable to both lender and borrower but have also devised faster and cheaper ways to operate. While FHA generally takes nearly two weeks to pass on an application for home-loan insurance, M.G.I.C. makes up its mind in 24 hours, charges only about half of FHA's costly ½%-per-year premium on the declining balance of loans.

Screened Risks. That combination has proved so enticing to savings and loan associations, the largest single source of housing credit, that last year they did twice as much business with M.G.I.C. ($860 million) as with the FHA. Unlike the FHA, the Milwaukee firm relies on its 4,500 lender-customers to appraise the value of property it insures, screens out bad risks by spot checks. The company concentrates on loans for city and suburban one-family homes, generally insists on at least a 10% down payment. As a result, its foreclosure rate runs about half that of the FHA, which backs loans made on a mere 3% down payment, and the VA, which guarantees loans with no down payment at all.

M.G.I.C. was founded eleven years ago by its president, Milwaukee Real Estate Lawyer Max H. Karl, now 58. At first it looked like a suicidal venture. Many insured loans, notably those on apartments and unsold new homes, proved to be overly speculative; more important, M.G.I.C. was not yet insisting—as it now does—on writing all policies with an option permitting it to pay only 20% of a claim in cash while leaving the mortgage lender to take over foreclosed property. Allowed initially to operate only in Wisconsin, Illinois and Minnesota, M.G.I.C. lost $64,000 in its first year. In 1959, Karl shrewdly tied his fortunes to those of S & Ls, which had just won authority to make loans up to 90% of the cost of a house but were often hesitant to take such a risk. To make sure that S & Ls got the message, Karl soon persuaded eight elder statesmen of the industry to join his board of directors. M.G.I.C.'s profits have climbed steadily ever since, reaching $4,200,000 last year even though M.G.I.C. sets aside half its income from premiums as loss reserves.

Into the Ghetto. For all its rapid growth, M.G.I.C. is still a mite compared with mammoth FHA, but President Karl has his eye on some surprising markets. Last year the company began offering commercial-mortgage and lease-guarantee insurance in a tie-up with the Small Business Administration. Next, Karl expects to go into partnership with the State of Wisconsin to help city ghetto dwellers obtain more favorable mortgages. The state, under a law signed by Governor Warren Knowles last month, will insure 80% of such nothing-down loans, and M.G.I.C. will assume its usual top 20% of the risk. However hazardous that may sound, Karl insists: "We can get involved in every form of housing with safety and prudence.


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Gary et al:

Pardon me if I am a bit nostalgic, but this was a GREAT company and I actually LIKED Curt CULVER.  I understand that you and others are embittered by your experiences with Litton.  I find it sad when these once great private institutions lose their way!  I am ever the capitalist!

I am going to have to side with Kozy Bedfellows as to the position of hte Wisconsin Insurance Commissioner.  And this is NOT based upon any specific knowledge of either that office or its relationship with MGIC.

But I think we all know that the relationship between large insurance concerns and their regulators is usually very COZY.  I think that would be all the more so when the large insurer has a significant presence and contributes to the economy of a small city, such as Milwaukee.  The Wisconsin Insurance Commissioner is going to want to think the very best of this once great company.  And so I would expect that it will be the MARKET rather than the regulators that ultimately recognizes the capitalization problem.

I would think that the ratings agencies will similarly be sparing and forgiving.  It is only when actually HIT OVER THE HEAD with the losses that the serious downgrades will occur.

Ironically, the servicers are NOT subject to this market or regulatory oversight.  So they will be SPARED the most immediate consequences of their irresponsibility and dishonesty.  MGIC will rue the day that it fell in with the likes of Litton or when it undertook a venture such as CBASS!

I dont expect others in this Forum to shed any tears.  But I think that there is a tragic aspect to such a fall from grace!
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Bill I feel the same way in many respects.  In those days, your word was your bond.  And, that's where it stood in the business.
I posted the post regarding the Insurance Commissioners office really with tongue and cheek.  Its really a joke as a regulator.  I can site several dealings that I have with them, they all lost.  The first was the Surplus Lines tax's not being collected here in Wisconsin, I got involved in a business deal and brought to the attention of the OCI, they jerked me around, finally I sued the company, after an written appellate decision, I received 7 years of premium returned, as well as them still have to provide coverage, the state then began collecting the surplus lines tax's.  My second go around with them was with American Family Insurance, that involved out right fraud.  AMI offered me 150K to settle, I hung up on the lawyer and brought a class action against them. They settled it four days after my deposition, when one of their lawyers inserted documents into my file during a break in the deposition and I caught him at, its all in the record!  Now more recently I pushed the OCI to collect the surplus lines tax's on the Forced Place Insurance Litton Loan provided.  Again, they failed the tax payers. 
Ahhh for I would not count on the OCI, or any of its lawyers to do a damn thing, S&P will down grade MGIC, and others like Republic, and Chase will increase their stock positions in an attempt to keep it afloat so as long as they can dismantle the entire CBASS dealings! 
Curt Culver and the OCI along with the Governor Doyle are all cozy bed fellows.  Golf together, etc.  Besides, it was Culver and Doyle, using Guaranty Bank, (Ken Jastrow, ceo of Temple Inland on the board of directors)
to provide 30 million for "Illegal Immigrants" housing,  within one week 27.5 million was spent before the state over rode them and closed it down. 
So your right Bill, they are not going to do anything, I can't think of one regulator that has with the exception of the Ohio Attorney General thus far.
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