Finance & Business World

Marty Whitman and Al Zucaro, stock pickers with a knack for buying low, may be dripping in sweat after they snapped up U.S. mortgage insurers that shed more than 40 percent of their value in the past three months.

MGIC Investment Corp., PMI Group Inc. and Radian Group Inc., the industry’s three largest firms, had their worst year in 2007, declining as much as 78 percent. Whitman bought into the slump to become the largest stakeholder in Philadelphia- based Radian. Zucaro became the No. 1 investor in PMI of Walnut Creek, California, and the second-biggest for Milwaukee-based MGIC.

“We’re just going to have to sweat it out for the next 18 or 24 months,” said Zucaro, who runs Old Republic International Corp., parent of the industry’s sixth-largest company.

Investors abandoned the group on concern record mortgage defaults may wipe out profit in 2008 and beyond. MGIC plummeted 64 percent during 2007, PMI dropped 72 percent and Radian fell 78 percent. That made them bargains to Zucaro and Whitman’s Third Avenue Management LLC, whose flagship mutual fund outperformed the Standard & Poor’s 500 Index in seven of the past eight years.

Zucaro has increased his stake in MGIC to 11 percent and owned 15 percent of PMI, according to data compiled by Bloomberg. Whitman held 19 percent of Radian and 1.2 percent of MGIC.

Lower Value

Neither Whitman, 83, nor Zucaro, 68, disclosed what they paid for the shares. If Zucaro purchased PMI at the average price of $28.29 during the 11-week period when he obtained the stake, according to a regulatory filing, his investment may have lost about 60 percent through yesterday. PMI closed at $11.45 in New York Stock Exchange composite trading yesterday, down from a 52-week high of $51.46 on Feb. 6. Using the same methodology, Zucaro’s MGIC holding may have lost about a third of its value.

The Radian stake acquired by Whitman in July may have dropped about 80 percent based on the average share price. Stock acquired during the next three months may have dropped more than 40 percent. Radian closed at $10.11 yesterday, down from $54 at the end of June.

“While the near-term situation may seem dire, we are patient, long-term investors willing to ride out short-term volatility,” Whitman’s company said in a Dec. 28 filing. Financial insurance companies, including Radian, MGIC and bond insurer MBIA Inc., were less than 4 percent of holdings in the Third Avenue Value Fund as of Oct. 31. The fund had assets of more than $11 billion on Dec. 31. Whitman didn’t respond to requests for comment.

Premiums Increase

The recovery Whitman and Zucaro anticipate may have already begun bad credit payday loans. The Mortgage Insurance Companies of America in Washington said premiums from new policies rose 79 percent in November from a year earlier as banks, weary of record foreclosures, forced more borrowers to buy policies. Mortgage insurers repay lenders when customers don’t.

Pressure from regulators and mortgage investors has also forced lenders to tighten standards and screen out people who can’t really afford loans. That may cut future default rates and reduce claims costs for mortgage insurance.

Another boost may come from Treasury Secretary Henry Paulson’s plan to curb foreclosures by freezing rates on some adjustable loans for five years.

“Value investors are looking ahead and have figured that, by hook or by crook, these companies will get through 2008,” said David Havens, a credit analyst at UBS AG in Stamford, Connecticut. “The insurance they are selling now is probably quite a bit better than it has been for a number of years in terms of quality.”

Quarterly Losses

MGIC is the largest U.S. mortgage insurer, covering $173 billion of home loans, followed by PMI with $152 billion and Radian with $114 billion, according to 2006 data from trade publication Inside Mortgage Finance.

Zucaro and Whitman accumulated their stakes as the industry struggled through its worst year on record. MGIC’s third-quarter loss was $372.5 million and the company said it didn’t expect to be profitable in 2008. PMI had an $86.8 million loss as claims costs increased fivefold. Radian lost $704 million.

Zucaro has run Chicago-based Old Republic since 1990. Born in France, he joined the insurer in 1976 as chief financial officer. The company also covers property and sells title insurance. The value of Old Republic’s bond holdings more than doubled to $6.8 billion in the four years ended 2006 and its stock investments increased 25 percent since they were purchased, according to the company’s most recent annual report.

`The Mess We’re In’

“You shouldn’t be in the insurance business unless you have a 5-to-10 year horizon,” Zucaro said in a Nov. 30 interview. “Lower interest rates do encourage business activity, and it all feeds on itself and might enable us to get out of the mess we’re in.”

Whitman’s third-quarter letter to shareholders said he won’t buy “unless the issuing company enjoys a super-strong financial position.” He did just that with Radian amid what he saw as a “panic” surrounding financial stocks. Whitman called Radian “well-financed” and said it can “survive and prosper” without going to capital markets for new funds in 2008.
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WHEN IT COMES TO MORTGAGE lending customer satisfaction, Wachovia tops the list, followed closely by SunTrust, according to the latest research from J.D. Power and Associates. The research firm, whose results are often touted in marketing efforts, showed that overall, most borrowers remain satisfied with the service from their lenders despite the apparent burst of the housing bubble and sub-prime mortgage foreclosures. The study, which measured satisfaction over four factors of the mortgage experience, found that overall satisfaction was 750 on a 1,000-point scale, which is about equal to a similar study conducted last year.

“What we thought was going to happen was that the satisfaction rate would go down because [we thought] people were going to have a harder time getting a loan,” Tim Ryan, senior director of the mortgage practice at J.D. Power and Associates and author of the study, tells Marketing Daily. Satisfaction remained level because many borrowers were shying away from brokers and dealing directly with lenders, which speeds mortgage approval and closing times, he says.

Ryan adds that with so many sub-prime borrowers defaulting on their loans, mortgages for mid-range borrowers were also approved more quickly, which also increased customer satisfaction.

On the 1,000-point scale, Wachovia scored 827, and SunTrust scored 818. The next-closest score was from Bank of America–which was 760, a 50-point difference. “Those two companies really commit to customer satisfaction and do what they can to make sure they do that well,” Ryan says cash advance now. “There’s a lot of moving parts [to a mortgage] and to get it right takes a lot of work.”

“We are proud to be setting a new standard in customer service for the mortgage industry,” said Becky DeGeorge, customer experience leader for Wachovia Mortgage and Retail Credit, in a statement. “Our consistent leadership in customer satisfaction shows we have a model that works across all business lines. That’s a great foundation for winning the loyalty of existing customers and attracting new customers in a challenging environment.”

Factors that affect a customer service ratings include providing an accurate time frame for approval, providing updates on the process, and providing accurate application and closing cost estimates. The survey, which was conducted from September 2006 to August 2007, showed that customers who received an approval time frame gave scores that were an average 112 points higher than those who did not get such information. Similarly, customers who received updates on their loan status provided scores that were an average 209 points higher.

On the downside, customers whose monthly payments were higher than estimated gave scores that were 159 points lower than borrowers who received accurate estimates. Also, borrowers who were surprised with additional fees during closing gave scores that were 220 points lower, according to the study.

Moving forward, Ryan expects customer satisfaction to increase over the next year, as fewer borrowers go through brokers to refinance, though diminishing property values could hurt the customer satisfaction index.

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The Central Bank has reported a further slowdown in mortgage lending over the past month, continuing a trend that has been continuing since the start of the year.

The bank says the annual rate of increase in residential mortgage lending was just over 15% in the 12 months to October of this year no fax payday loans.

This is a full percentage point lower than the rate in the 12 months to September.

The rate of increase has fallen by around one percentage point in each month since January of this year.

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