941 Bank Deposit Coupon

MGIC Investment Corporation Reports First Quarter 2013 Results.

MILWAUKEE
 , city (1990 pop. 628,088), seat of Milwaukee co., SE Wis., at the point where the Milwaukee, Menominee, and Kinnickinnic rivers enter Lake Michigan; inc. 1846.
, April 30, 2013 /PRNewswire/ —
MGIC

 Investment Corporation
(
NYSE

:
MTG

MTG Methanol To Gasoline
MTG Manual Tank Gauging
MTG Master Timing Generator
MTG Micro Turbine Generator
) today reported a net loss for the quarter ended March 31,
2013 of $72.9 million, compared with a net loss of $19.6 million for the
same quarter a year ago.
Diluted
  
tr.v. di·lut·ed, di·lut·ing, di·lutes
1. To make thinner or less concentrated by adding a liquid such as water.

2. To lessen the force, strength, purity, or brilliance of, especially by admixture.
 loss per share was $0.31 for the
quarter ending March 31, 2013, compared to diluted loss per share of
$0.10 for the same quarter a year ago.

Total revenues for the first quarter were $269.2 million, compared
with $379.7 million in the first quarter last year. Net premiums written
for the quarter were $248.5 million, compared with $255.0 million for
the same period last year. Realized gains in the first quarter of 2013
were $1.3 million compared to $77.6 million for the same period last
year.

New insurance written in the first quarter was $6.5 billion,
compared to $4.2 billion in the first quarter of 2012. In addition, the
Home Affordable
Refinance

 Program accounted for $3.0 billion of
insurance that is not included in the new insurance written total due to
these transactions being treated as a modification of the coverage on
existing insurance in force compared to $1.3 billion in the first
quarter of 2012. Persistency, or the percentage of insurance remaining
in force from one year prior, was 78.7 percent at March 31, 2013,
compared with 79.8 percent at
December
 see month.
 31, 2012, and 82.2 percent at
March 31, 2012.

As of March 31, 2013, MGIC’s primary insurance in force was
$159.5 billion, compared with $162.1 billion at December 31, 2012, and
$169.0 billion at March 31, 2012. The fair value of MGIC Investment
Corporation’s investment portfolio, cash and cash equivalents was
$6.2 billion at March 31, 2013, compared with $5.3 billion at December
31, 2012, and $6.4 billion at March 31, 2012. The increase from December
31, 2012 was primarily a result of the March equity and debt
offering

At March 31, 2013, the percentage of loans that were
delinquent
 1) adj. not paid in full amount or on time. 2) n. short for an underage violator of the law as in juvenile delinquent.


DELINQUENT, civil law. He who has been guilty of some crime, offence or failure of duty.
,
excluding bulk loans, was 10.91 percent, compared with 11.87 percent at
December 31, 2012, and 12.84 percent at March 31, 2012. Including bulk
loans, the percentage of loans that were delinquent at March 31, 2013
was 12.83 percent, compared to 13.90 percent at December 31, 2012, and
15.09 percent at March 31, 2012.

Losses incurred in the first quarter were $266.2 million, down from
$337.1 million reported for the same period last year primarily due to
fewer new notices of default being received. Net
underwriting

 and other
expenses were $50.0 million in the first quarter as compared to $50.3
million reported for the same period last year.

Conference Call and Webcast Details

MGIC Investment Corporation will hold a conference call today, April
30, 2013, at 10 a.m. ET to allow securities analysts and shareholders
the opportunity to hear management discuss the company’s quarterly
results. The conference call number is 1-866-837-9780. The call is being
webcast and can be accessed at the company’s website at
http://mtg.mgic.com/. The webcast is also being distributed over
CCBN’s Investor Distribution Network to both institutional and
individual investors. Investors can listen to the call through
CCBN’s individual investor center at
http://www.companyboardroom.com/ or by visiting any of the investor
sites in CCBN’s Individual Investor Network. The webcast will be
available for replay on the company’s website through May 30, 2013
under Investor Information.

About MGIC

MGIC (www.mgic.com), the principal subsidiary of MGIC Investment
Corporation, is the nation’s largest private mortgage
insurer

 as
measured by $159.5 billion primary insurance in force covering 1 million
mortgages as of March 31, 2013. MGIC serves lenders throughout the

United States
 officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world’s third largest country in population and the fourth largest country in area.
,
Puerto Rico
 , island (2005 est. pop. 3,917,000), 3,508 sq mi (9,086 sq km), West Indies, c.1,000 mi (1,610 km) SE of Miami, Fla.
, and other locations helping families achieve
homeownership sooner by making affordable low-down-payment mortgages a
reality.

This press release, which includes certain additional statistical
and other information, including non-GAAP financial information and a
supplement that contains various portfolio statistics are both available
on the Company’s website at http://mtg.mgic.com/ under Investor
Information, Press Releases or Presentations/Webcasts.

From time to time MGIC Investment Corporation releases important
information via postings on its corporate website without making any
other disclosure and intends to continue to do so in the future.
Investors and other interested parties are encouraged to enroll to
receive automatic email alerts and Really Simple
Syndication

 (
RSS

) feeds
regarding new postings. Enrollment information can be found at
http://mtg.mgic.com under Investor Information.

Safe Harbor

 Statement

Forward Looking Statements and Risk Factors:

As used below, “we,” “our” and “us”
refer to MGIC Investment Corporation’s consolidated operations or
to MGIC Investment Corporation, as the context requires;
“MGIC” refers to
Mortgage Guaranty Insurance Corporation

; and
“MIC” refers to MGIC
Indemnity

 Corporation.

Our actual results could be affected by the risk factors below.
These risk factors should be reviewed in connection with this press
release and our periodic reports to the Securities and Exchange
Commission. These risk factors may also cause actual results to differ
materially from the results contemplated by forward looking statements
that we may make. Forward looking statements consist of statements which
relate to matters other than historical fact, including matters that
inherently refer to future events. Among others, statements that include
words such as “believe,” “anticipate,”
“will” or “expect,” or words of similar import, are
forward looking statements. We are not undertaking any obligation to
update any forward looking statements or other statements we may make
even though these statements may be affected by events or
circumstances

 occurring after the forward looking statements or other statements were
made. No investor should rely on the fact that such statements are
current at any time other than the time at which this press release was
issued.

In addition, the current period financial results included in this
press release may be affected by additional information that arises
prior to the filing of our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2013.

Capital requirements

 may prevent us from continuing to write new
insurance on an uninterrupted basis.

The insurance laws of 16 jurisdictions, including
Wisconsin
 , upper midwestern state of the United States. It is bounded by Lake Superior and the Upper Peninsula of Michigan, from which it is divided by the Menominee
, our

domiciliary

 state, require a mortgage insurer to maintain a minimum
amount of statutory capital relative to the risk in force (or a similar
measure) in order for the mortgage insurer to continue to write new
business. We refer to these requirements as the “Capital
Requirements.” While they vary among jurisdictions, the most common
Capital Requirements allow for a maximum risk-to-capital ratio of 25 to
1. A risk-to-capital ratio will increase if the percentage decrease in
capital exceeds the percentage decrease in insured risk. Therefore, as
capital decreases, the same dollar decrease in capital will cause a
greater percentage decrease in capital and a greater increase in the
risk-to-capital ratio. Wisconsin does not
regulate

v.
1. To control or direct according to rule, principle, or law.

2. To adjust to a particular specification or requirement.

3. To adjust a mechanism for accurate and proper functioning.

4.
 capital by using a
risk-to-capital measure but instead requires a minimum
policyholder

 position (”
MPP

“). The “policyholder position” of a
mortgage insurer is its net worth or surplus,
contingency
 n. an event that might not occur.
 reserve and a
portion of the reserves for unearned premiums.

During part of 2012 and 2013, MGIC’s risk-to-capital ratio
exceeded 25 to 1. In March 2013, our holding company issued additional
equity and convertible debt securities and transferred $800 million to
increase MGIC’s capital. As a result, at March 31, 2013,
MGIC’s preliminary risk-to-capital ratio was 20.4 to 1, below the
maximum allowed by the jurisdictions with Capital Requirements, and its
preliminary policyholder position was $168 million above the required
MPP of $1.2 billion. At March 31, 2013, the preliminary risk-to-capital
ratio of our combined insurance operations (which includes
reinsurance

 affiliates) was 23.1 to 1. A higher risk-to-capital ratio on a combined
basis may indicate that, in order for MGIC to continue to utilize
reinsurance arrangements with its subsidiaries or subsidiaries of our
holding company, additional capital contributions to the reinsurance
affiliates could be needed. These reinsurance arrangements permit MGIC
to write insurance with a higher coverage percentage than it could on
its own under certain state-specific requirements.

At this time, we expect MGIC to continue to comply with the current
Capital Requirements, although you should read the rest of these risk
factors for information about factors that could negatively affect such
compliance. The remainder of the discussion in this risk factor
addresses circumstances that would be significant if we were not in such
compliance.

The Office of the Commissioner of Insurance of the State of
Wisconsin (“OCI”) has waived MGIC’s compliance with
Wisconsin’s Capital Requirements until December 31, 2013 (the
“OCI
Waiver

“). The OCI Waiver, including the alternative
capital requirements for MGIC, is summarized more fully in, and included
as an exhibit to, our
Form 8-K

See 8-K.
 filed with the SEC on
January
 see month.
 24, 2012.
The OCI, in its sole discretion, may modify,
terminate

 or extend the OCI
Waiver. If the OCI modifies or terminates its waiver, or if it fails to
renew its waiver upon
expiration

, and if MGIC does not comply with the
Capital Requirements at that time, MGIC could be prevented from writing
new business in all jurisdictions. We cannot assure you that MGIC will
comply with the Capital Requirements in the future. If MGIC were
prevented from writing new business in all jurisdictions, our insurance
operations in MGIC would be in run-off (meaning no new loans would be
insured but loans previously insured would continue to be covered, with
premiums continuing to be received and losses continuing to be paid on
those loans) until MGIC either met the Capital Requirements or obtained
a necessary waiver to allow it to once again write new business.

MGIC applied for waivers in the other jurisdictions with Capital
Requirements and received waivers from some of them. Insurance
departments, in their sole discretion, may modify, terminate or extend
their waivers of Capital Requirements. If an insurance department other
than the OCI modifies or terminates its waiver, or if it fails to grant
a waiver or renew its waiver after expiration, and if MGIC does not
comply with the Capital Requirements at that time, MGIC could be
prevented from writing new business in that particular jurisdiction. New
insurance written in the jurisdictions that have Capital Requirements
represented approximately 50% of our new insurance written in 2012 and
the first quarter of 2013. Depending on the level of losses that MGIC
experiences in the future, it is possible that
regulatory
  
tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates
1. To control or direct according to rule, principle, or law.

2.
 action by one
or more jurisdictions, including those that do not have specific Capital
Requirements, may prevent MGIC from continuing to write new insurance in
that jurisdiction. The National Association of Insurance Commissioners
(”
NAIC

See National Association of Investors Corporation (NAIC).
“) is reviewing the minimum capital and surplus
requirements for mortgage insurers, although it has not established a
date by which it must make proposals to change such requirements.
Depending on the scope of proposals made by the NAIC, MGIC may be
prevented from writing new business in the jurisdictions adopting such
proposals. The GSEs are also developing new capital standards for
mortgage insurers. See “We may not continue to meet the GSEs’
mortgage insurer eligibility requirements.”

A possible future failure by MGIC to meet the Capital Requirements
will not necessarily mean that MGIC lacks sufficient resources to pay
claims on its insurance liabilities. While we believe MGIC has
sufficient claims paying resources to meet its claim obligations on its
insurance in force on a timely basis, we cannot assure you that events
that may lead MGIC to fail to meet Capital Requirements would not also
result in it not having sufficient claims paying resources. Furthermore,
our estimates of MGIC’s claims paying resources and claim
obligations are based on various assumptions. These assumptions include
the timing of the receipt of claims on loans in our
delinquency

 inventory and future claims that we anticipate will ultimately be
received, our anticipated
rescission

 activity, premiums, housing values
and unemployment rates. These assumptions are subject to inherent
uncertainty and require judgment by management. Current conditions in
the domestic economy make the assumptions about when anticipated claims
will be received, housing values, and unemployment rates highly volatile
in the sense that there is a wide range of reasonably possible outcomes.
Our anticipated rescission activity is also subject to inherent
uncertainty due to the difficulty of predicting the amount of claims
that will be rescinded and the outcome of any
legal proceedings

 or
settlement discussions related to rescissions. You should read the rest
of these risk factors for additional information about factors that
could negatively affect MGIC’s claims paying resources.

We have in place a
longstanding

 plan to write new business in MIC, a
direct subsidiary of MGIC, if MGIC is unable to do so. During 2012, MIC
began writing new business on the same policy terms as MGIC in the
jurisdictions where MGIC did not have active waivers of the Capital
Requirements. Because MGIC again meets the Capital Requirements, MGIC
will again be writing new business in all jurisdictions and MIC will
suspend writing new business. As of March 31, 2013, MIC had statutory
capital of $450 million and risk in force of approximately $800 million.
MIC is licensed to write business in all jurisdictions and, subject to
the conditions and restrictions discussed below, has received the
necessary approvals from
Fannie Mae
 see Federal National Mortgage Association.
 and
Freddie Mac
 see Federal Home Loan Mortgage Corporation.
 (the
“GSEs”) and the OCI to write business in all of the
jurisdictions where MGIC may become unable to do so because those
jurisdictions have not waived their Capital Requirements for MGIC.

Under an agreement in place with Fannie Mae, as
amended
  
v. a·mend·ed, a·mend·ing, a·mends

v.tr.
1. To change for the better; improve:

2.
 
November
 see month.
 30,
2012, MIC will be eligible to write mortgage insurance through December
31, 2013, in those jurisdictions (other than Wisconsin) in which MGIC
cannot write new insurance due to MGIC’s failure to meet Capital
Requirements and to obtain a waiver of them. MIC is also approved to
write mortgage insurance for 60 days in jurisdictions that do not have
Capital Requirements if a jurisdiction notifies MGIC that, due to its
financial condition, it may no longer write new business. The agreement
with Fannie Mae, including certain conditions and restrictions to its
continued effectiveness, is summarized more fully in, and included as an
exhibit to, our Form 8-K filed with the Securities and Exchange
Commission (the “SEC”) on November 30, 2012. Such conditions
include the continued effectiveness of the OCI Waiver.

Under a letter from Freddie Mac that was amended and restated as of
November 30, 2012, Freddie Mac approved MIC to write business only in
those jurisdictions (other than Wisconsin) where either (a) MGIC is
unable to write business because it does not meet the Capital
Requirements and does not obtain waivers of them, or (b) MGIC receives
notice that it may not write business because of that
jurisdiction’s view of MGIC’s financial condition. This
approval of MIC, which may be withdrawn at any time, expires December
31, 2013, or earlier if a financial examination by the OCI determines
that there is a reasonable probability that MGIC will be unable to
honor

 claim obligations at any time in the five years after the examination,
or if MGIC fails to honor claim payments. The approval from Freddie Mac,
including certain conditions and restrictions to its continued
effectiveness, is summarized more fully in, and included as an exhibit
to, our Form 8-K filed with the SEC on November 30, 2012. Such
conditions include requirements that MIC not exceed a risk-to-capital
ratio of 18:1 (at March 31, 2013, MIC’s preliminary risk-to-capital
ratio was 1.8 to 1); MGIC and MIC comply with all terms and conditions
of the OCI Waiver; the OCI Waiver remain effective; and MIC provide MGIC
access to the capital of MIC in an amount necessary for MGIC to maintain
sufficient liquidity to satisfy its obligations under insurance policies
issued by MGIC.

On November 29, 2012, the OCI issued an order, effective until
December 31, 2013, establishing a procedure for MIC to pay a dividend to
MGIC if either of the following two events occurs: (1) an OCI
examination determines that there is a reasonable probability that MGIC
will be unable to honor its policy obligations at any time during the
five years after the examination, or (2) MGIC fails to honor its policy
obligations that it in good faith believes are valid. If one of these
events occurs, the OCI is to conduct a review (to be completed within 60
days after the
triggering event

) to determine the maximum single
dividend MIC could
prudently
  
adj.
1. Wise in handling practical matters; exercising good judgment or common sense.

2. Careful in regard to one’s own interests; provident.

3. Careful about one’s conduct; circumspect.
 pay to MGIC for the benefit of MGIC’s
policyholders, taking account of the interests of MIC’s
policyholders and the general public and certain standards for dividends
imposed by Wisconsin law. Upon the completion of the review, the OCI
will authorize, and MIC will pay, such a dividend within 30 days.

We cannot assure you that the GSEs will approve or continue to
approve MIC to write new business in all jurisdictions in which MGIC may
become unable to do so, or that they will extend their approvals upon
expiration. If one
GSE

 does not approve MIC in all jurisdictions in
which MGIC becomes unable to write new business, MIC may be able to
write insurance on loans that will be sold to the other GSE or retained
by private investors. However, because lenders may not know which GSE
will purchase their loans until mortgage insurance has been procured,
lenders may be unwilling to
procure

 mortgage insurance from MIC.
Furthermore, if we are unable to write business in all jurisdictions
utilizing a combination of MGIC and MIC, lenders may be unwilling to
procure insurance from us anywhere. In addition, a lender’s
assessment of the financial strength of our insurance operations may
affect its willingness to procure insurance from us. In this regard, see
“- Competition or changes in our relationships with our customers
could reduce our revenues or increase our losses.”

The amount of insurance we write could be adversely affected if the
definition of Qualified Residential Mortgage results in a reduction of
the number of low down payment loans available to be insured or if
lenders and investors select alternatives to private mortgage insurance.

The financial reform legislation that was passed in
July
 see month.
 2010 (the
“Dodd-Frank Act” or “Dodd-Frank”) requires a
securitizer to retain at least 5% of the risk associated with mortgage
loans that are
securitized

Of, related to, or being debt securities that are secured with assets. For example, mortgage purchase bonds are secured by mortgages that have been purchased with the bond issue’s proceeds.
, and in some cases the retained risk may be
allocated between the securitizer and the lender that originated the
loan. This risk retention requirement does not apply to mortgage loans
that are Qualified Residential Mortgages (“QRMs”) or that are
insured by the
Federal Housing Administration

 (”
FHA

See Federal Housing Administration (FHA).
“) or
another federal agency. In March 2011, federal regulators requested
public comments on a proposed risk retention rule that includes a
definition of
QRM

QRM Quick Response Manufacturing
QRM Man Made Interference
QRM Quality Resource Management
QRM Quantitative Research Methods
QRM Quarterly Review Meeting
QRM Quick Response Modification
. The proposed definition of QRM contains many
underwriting requirements, including a maximum loan-to-value ratio
(”
LTV

“) of 80% on a home purchase transaction, a
prohibition
 legal prevention of the manufacture, transportation, and sale of alcoholic beverages, the extreme of the regulatory liquor laws. The modern movement for prohibition had its main growth in the United States and developed largely as a result of the
 on seller contributions toward a borrower’s down payment or
closing
costs

, and certain limits on a borrower’s debt-to-income ratio. The
LTV is to be calculated without including mortgage insurance. None of
our new risk written in 2012 or the first quarter of 2013 was on loans
that would qualify as QRMs under the March 2011 proposed rules.

The regulators also requested public comments regarding an
alternative QRM definition, the underwriting requirements of which would
allow loans with a maximum LTV of 90% and higher debt-to-income ratios
than allowed under the proposed QRM definition, and that may consider
mortgage insurance in determining whether the LTV requirement is met. We
estimate that approximately 22%and 23%of our new risk written in 2012
and the first quarter of 2013, respectively, was on loans that would
have met the alternative QRM definition. The regulators also requested
that the public comments include information that may be used to assess
whether mortgage insurance reduces the risk of default. We submitted a
comment letter, including studies to the effect that mortgage insurance
reduces the risk of default.

Under the proposed rule, because of the capital support provided by
the U.S. Government, the GSEs satisfy the Dodd-Frank risk-retention
requirements while they are in
conservatorship

. Therefore, under the
proposed rule, lenders that
originate

v.
1. To bring into being; create.

2. To come into being; start.
 loans that are sold to the GSEs
while they are in conservatorship would not be required to retain risk
associated with those loans. The public comment period for the proposed
rule
expired
  
v. ex·pired, ex·pir·ing, ex·pires

v.intr.
1. To come to an end; terminate:

2.
 in August 2011. At this time we do not know when a final
rule will be issued, although it was not expected that the final QRM
rule would be issued until the final rule defining Qualified Mortgages
(“QMs”)(discussed below) was issued. The Consumer Financial
Protection Bureau (the ”
CFPB

“) issued the final QM rule on
January 10, 2013.

Depending on, among other things, (a) the final definition of QRM
and its requirements for LTV, seller contributions and debt-to-income
ratio, (b) to what extent, if any, the presence of mortgage insurance
would allow for a higher LTV in the definition of QRM, and (c) whether
lenders choose mortgage insurance for non-QRM loans, the amount of new
insurance that we write may be materially adversely affected. For other
factors that could decrease the demand for mortgage insurance, see
“- If the volume of low down payment home mortgage originations
declines, the amount of insurance that we write could decline, which
would reduce our revenues” and “- The implementation of the

Basel
  or  , Fr. Bâle, canton, N Switzerland, bordering on France and Germany.
 III capital accord, or other changes to our customers’
capital requirements, may discourage the use of mortgage
insurance.”

As noted above, on January 10, 2013, the CFPB issued the final rule
defining QM, in order to implement laws requiring lenders to consider a
borrower’s ability to repay a home loan before extending credit.
The QM rule prohibits loans with certain features, such as negative
amortization, points and fees in excess of 3% of the loan amount, and
terms exceeding 30 years, from being considered QMs. The rule also
establishes general underwriting criteria for QMs including that a
borrower have a total debt-to-income ratio of less than or equal to 43%.
The rule provides a temporary category of QMs that have more flexible
underwriting requirements so long as they satisfy the general product
feature requirements of QMs and so long as they meet the underwriting
requirements of the GSEs or those of the U.S. Department of Housing and
Urban Development, Department of
Veterans Affairs

 or Rural Housing
Service (collectively, “Other Federal Agencies”). While the
debt-to-income ratio contained in our underwriting
guidelines

n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks.
 exceeds
the general requirements of the QM definition, it is within the
underwriting guidelines of the GSEs. The temporary category of QMs that
meet the underwriting requirements of the GSEs or the Other Federal
Agencies will phase out when the GSEs or the Other Federal Agencies
issue their own qualified mortgage rules, if the GSEs’
conservatorship ends, and in any case after seven years. We expect that
most lenders will be reluctant to make loans that do not qualify as QMs
because they will not be
entitled
  
tr.v. en·ti·tled, en·ti·tling, en·ti·tles
1. To give a name or title to.

2. To furnish with a right or claim to something:
 to the presumptions about compliance
with the ability-to-pay requirements. Given the credit characteristics
presented to us, we estimate that 99% of our new risk written in 2012
and the first quarter of 2013 was for mortgages that would have met the
QM definition and 91% and 90% of our new risk written in 2012 and the
first quarter of 2013, respectively, was for mortgages that would have
met the QM definition even without the temporary category allowed for
mortgages that meet the GSEs’ underwriting requirements. In making
these estimates, we have not considered the limitation on points and
fees because the information is not available to us. We do not believe
such limitation would materially affect the percentage of our new risk
written meeting the QM definition. The QM rule is scheduled to become
effective in January 2014.

Alternatives to private mortgage insurance include:

* lenders using government mortgage insurance programs, including
those of the Federal Housing Administration, or FHA, and the Veterans
Administration,

* lenders and other investors holding mortgages in portfolio and
self-insuring,

* investors using risk
mitigation

 techniques other than private
mortgage insurance, using other risk mitigation techniques in
conjunction with reduced levels of private mortgage insurance coverage,
or accepting credit risk without
credit enhancement

, and

* lenders originating mortgages using
piggyback

1. A broker trading in his or her personal account after trading in the same security for a customer. The broker may believe the customer has access to privileged information that will cause the transaction to be profitable.

2.
 structures to avoid
private mortgage insurance, such as a first mortgage with an 80%
loan-to-value ratio and a second mortgage with a 10%, 15% or 20%
loan-to-value ratio (referred to as 80-10-10, 80-15-5 or 80-20 loans,
respectively) rather than a first mortgage with a 90%, 95% or 100%
loan-to-value ratio that has private mortgage insurance.

The FHA substantially increased its market share beginning in 2008,
and beginning in 2011, that market share began to gradually decline. We
believe that the FHA’s market share increased, in part, because
private mortgage insurers tightened their underwriting guidelines (which
led to increased utilization of the FHA’s programs) and because of
increases in the amount of loan level delivery fees that the GSEs assess
on loans (which result in higher costs to borrowers). In addition,
federal legislation and programs provided the FHA with greater
flexibility in establishing new products and increased the FHA’s
competitive position against private mortgage insurers. We believe that
the FHA’s current
premium pricing

, when compared to our current
credit-tiered premium pricing (and considering the effects of GSE
pricing changes), has allowed us to be more competitive with the FHA
than in the recent past for loans with high
FICO

 credit scores. We
cannot predict, however, the FHA’s share of new insurance written
in the future due to, among other factors, different loan eligibility
terms between the FHA and the GSEs; future increases in guarantee fees
charged by the GSEs; changes to the FHA’s annual premiums; and the
total profitability that may be realized by mortgage lenders from
securitizing loans through
Ginnie Mae
 see Federal National Mortgage Association.
 when compared to securitizing
loans through Fannie Mae or Freddie Mac.

Changes in the business practices of the GSEs, federal legislation
that changes their charters or a
restructuring

 of the GSEs could reduce
our revenues or increase our losses.

Substantially all of our insurance written is for loans sold to
Fannie Mae and Freddie Mac. The business practices of the GSEs affect
the entire relationship between them, lenders and mortgage insurers and
include:

* the level of private mortgage insurance coverage, subject to the
limitations of the GSEs’ charters (which may be changed by federal
legislation), when private mortgage insurance is used as the required
credit enhancement on low down payment mortgages,

* the amount of loan level delivery fees (which result in higher
costs to borrowers) that the GSEs assess on loans that require mortgage
insurance,

* whether the GSEs influence the mortgage lender’s selection of
the mortgage insurer providing coverage and, if so, any transactions
that are related to that selection,

* the underwriting standards that determine what loans are eligible
for purchase by the GSEs, which can affect the quality of the risk
insured by the mortgage insurer and the availability of mortgage
loans,

* the terms on which mortgage insurance coverage can be canceled
before reaching the cancellation thresholds established by law,

* the programs established by the GSEs intended to avoid or
mitigate

v.
To moderate in force or intensity.


miti·gation n.
 loss on insured mortgages and the circumstances in which mortgage
servicers must implement such programs,

* the terms that the GSEs require to be included in mortgage
insurance policies for loans that they purchase, and

* the extent to which the GSEs
intervene
 v. to obtain the court’s permission to enter into a lawsuit which has already started between other parties and to file a complaint stating the basis for a claim in the existing lawsuit.
 in mortgage insurers’
rescission practices or rescission settlement practices with lenders.
For additional information, see “- Our losses could increase if we
do not prevail in proceedings challenging whether our rescissions were
proper or we enter into material resolution arrangements.”

The Federal Housing Finance Agency (”
FHFA

FHFA Florida Home Furnishings Association
FHFA Fairfax Hispanic Firefighters Association
“) is the

conservator
 n. a guardian and protector appointed by a judge to protect and manage the financial affairs and/or the person’s daily life due to physical or mental limitations or old age.
 of the GSEs and has the authority to control and direct
their operations. The increased role that the federal government has
assumed in the residential mortgage market through the GSE
conservatorship may increase the likelihood that the business practices
of the GSEs change in ways that have a material adverse effect on us. In
addition, these factors may increase the likelihood that the charters of
the GSEs are changed by new federal legislation. The Dodd-Frank Act
required the U.S. Department of the Treasury to report its
recommendations regarding options for ending the conservatorship of the
GSEs. This report was released in
February
 see month.
 2011 and while it does not
provide any definitive timeline for GSE reform, it does recommend using
a combination of federal housing policy changes to wind down the GSEs,

shrink
 Vox populi noun A psychiatrist
 the government’s
footprint

 in housing finance, and help
bring private capital back to the mortgage market. Since then, Members
of Congress introduced several bills intended to scale back the GSEs,
however, no legislation was enacted. As a result of the matters referred
to above, it is uncertain what role the GSEs, FHA and private capital,
including private mortgage insurance, will play in the domestic
residential housing finance system in the future or the impact of any
such changes on our business. In addition, the timing of the impact of
any resulting changes on our business is uncertain. Most meaningful
changes would require Congressional action to implement and it is
difficult to estimate when Congressional action would be final and how
long any associated
phase-in

n.
A gradual introduction:  
 period may last.

The GSEs have different loan purchase programs that allow different
levels of mortgage insurance coverage. Under the “charter
coverage” program, on certain loans lenders may choose a mortgage
insurance coverage percentage that is less than the GSEs’
“standard coverage” and only the minimum required by the
GSEs’ charters, with the GSEs paying a lower price for such loans.
In 2012 and the first quarter of 2013, nearly all of our volume was on
loans with GSE standard or higher coverage. We charge higher premium
rates for higher coverage percentages. To the extent lenders selling
loans to the GSEs in the future choose lower coverage for loans that we

insure

, our revenues would be reduced and we could experience other
adverse effects.

We may not continue to meet the GSEs’ mortgage insurer
eligibility requirements.

Substantially all of our insurance written is for loans sold to
Fannie Mae and Freddie Mac, each of which has mortgage insurer
eligibility requirements to maintain the highest level of eligibility,
including a financial strength rating of Aa3/AA-. Because MGIC does not
meet such financial strength rating requirements of Fannie Mae and
Freddie Mac (its financial strength rating from Moody’s is B2 (on
review for upgrade) and from Standard & Poor’s is B (with a
stable outlook)), MGIC is currently operating with each GSE as an
eligible insurer under a remediation plan. We believe that the GSEs view
remediation plans as a continuing process of interaction with a mortgage
insurer and MGIC will continue to operate under a remediation plan for
the
foreseeable
  
tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees
To see or know beforehand:
 future. There can be no assurance that MGIC will be able
to continue to operate as an eligible mortgage insurer under a
remediation plan. In particular, the GSEs are currently in discussions
with mortgage insurers regarding their standard mortgage insurer
eligibility requirements. The FHFA and the GSEs are separately
developing mortgage insurer capital standards that would replace the use
of external credit ratings. Revised capital standards are expected to be
released in 2013, however the timing of their implementation is unknown.
The GSEs may include any new eligibility requirements as part of our
current remediation plan. MIC’s financial strength rating from
Moody’s is Ba3 and from Standard & Poor’s is B (with a
stable outlook). Therefore, MIC also does not meet the current financial
strength rating requirements of the GSEs and has been operating with
each GSE as an eligible insurer under the approvals discussed above. See
“- Capital requirements may prevent us from continuing to write new
insurance on an uninterrupted basis.” If MGIC or MIC cease to be
eligible to insure loans purchased by one or both of the GSEs, it would
significantly reduce the volume of our new business writings.

We have reported net losses for the last six years, expect to
continue to report annual net losses, and cannot assure you when we will
return to profitability.

We have reported a net loss in each of the last six fiscal years,
with an aggregate net loss for 2007-2012 of $5.3 billion. For the first
quarter of 2013, we reported a net loss of $73 million. We currently
expect to continue to report annual net losses, the size of which will
depend primarily on the amount of our incurred and paid losses from our
business written prior to 2009. Our incurred and paid losses are
dependent on factors that make prediction of their amounts difficult and
any forecasts are subject to significant volatility. Although we
currently expect to return to profitability on an annual basis, we
cannot assure you when, or if, this will occur. Conditions that could
delay our return to profitability include high unemployment rates, low
cure rates, low housing values and unfavorable resolution of legal
disputes. You should read the rest of these risk factors for additional
information about factors that could increase our net losses in the
future. The net losses we have experienced have
eroded
  
v. e·rod·ed, e·rod·ing, e·rodes

v.tr.
1. To wear (something) away by or as if by abrasion:

2. To eat into; corrode.
, and any future
net losses will
erode
 , city (1991 urban agglomeration pop. 361,755), Tamil Nadu state, S India, on the Kaveri River. The city is located in a cotton-growing region, and its industries include cotton ginning and the manufacture of transport equipment.
, our shareholders’ equity and could result in
equity being negative.

Our losses could increase if we do not prevail in proceedings
challenging whether our rescissions were proper or we enter into
material resolution arrangements.

Prior to 2008, rescissions of coverage on loans were not a material
portion of our claims resolved during a year. However, beginning in
2008, our rescissions of coverage on loans have materially
mitigated
  
v. mit·i·gat·ed, mit·i·gat·ing, mit·i·gates

v.tr.
To moderate (a quality or condition) in force or intensity; alleviate. See Synonyms at relieve.

v.intr.
To become milder.
 our
paid losses. In 2009 through 2011, rescissions mitigated our paid losses
in the aggregate by approximately $3.0 billion; and in 2012 and the
first quarter of 2013, rescissions mitigated our paid losses by
approximately $0.3 billion and $35 million, respectively (in each case,
the figure includes amounts that would have either resulted in a claim
payment or been charged to a
deductible

 under a bulk or pool policy, and
may have been charged to a
captive

 
reinsurer
  
tr.v. re·in·sured, re·in·sur·ing, re·in·sures
To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company.
). In recent quarters, less
than 8% of claims received in a quarter have been resolved by
rescissions, down from the peak of approximately 28% in the first half
of 2009.

Our loss reserving methodology incorporates our estimates of future
rescissions and reversals of rescissions. Historically, the number of
rescissions that we have reversed has been
immaterial
 adj.
. A
variance

 between ultimate actual rescission and
reversal
 n. the decision of a court of appeal ruling that the judgment of a lower court was incorrect and is reversed. The result is that the lower court which tried the case is instructed to dismiss the original action, retry the case, or is ordered to change its
 rates and our estimates,
as a result of the outcome of claims investigations,
litigation

,
settlements or other factors, could materially affect our losses. See
“- Because loss reserve estimates are subject to uncertainties and
are based on assumptions that are currently very volatile, paid claims
may be substantially different than our loss reserves.” We estimate
rescissions mitigated our incurred losses by approximately $2.5 billion
in 2009 and $0.2 billion in 2010. In 2011, we estimate that rescissions
had no significant impact on our losses incurred. All of these figures
include the benefit of claims not paid in the period as well as the
impact of changes in our estimated expected rescission activity on our
loss reserves in the period. In 2012, we estimate that our rescission
benefit in loss reserves was reduced by $0.2 billion due to probable
rescission settlement agreements. We estimate that other rescissions had
no significant impact on our losses incurred in 2012 or in the first
quarter of 2013.

If the insured disputes our right to
rescind
 v.
 coverage, the outcome
of the dispute ultimately would be determined by legal proceedings.
Under our policies, legal proceedings disputing our right to rescind
coverage may be brought up to three years after the lender has obtained
title to the property (typically through a
foreclosure

) or the property
was sold in a sale that we approved, whichever is applicable, although
in a few jurisdictions there is a longer time to bring such an action.
For approximately 40% of our rescissions since the beginning of 2009
that are not subject to a settlement agreement, this period in which a
dispute may be brought has not ended. Until a liability associated with
a settlement agreement or litigation becomes probable and can be
reasonably estimated, we consider a rescission resolved for financial
reporting purposes even though legal proceedings have been initiated and
are ongoing. Although it is reasonably possible that, when the
proceedings are completed, there will be a determination that we were
not entitled to rescind in all cases, we are sometimes unable to make a
reasonable estimate or range of estimates of the potential liability.
Under
ASC
 Ambulatory surgery center, see there
 450-20, an estimated loss from such proceedings is
accrued
  
v. ac·crued, ac·cru·ing, ac·crues

v.intr.
1. To come to one as a gain, addition, or increment:

2.
 for
only if we determine that the loss is probable and can be reasonably
estimated. Therefore, when establishing our loss reserves, we do not
generally include additional loss reserves that would reflect an adverse
outcome from ongoing legal proceedings.

In April 2011, Freddie Mac advised its servicers that they must
obtain its prior approval for rescission settlements and Fannie Mae
advised its servicers that they are
prohibited
  
tr.v. pro·hib·it·ed, pro·hib·it·ing, pro·hib·its
1. To forbid by authority:  See Synonyms at forbid.

2.
 from entering into such
settlements. In addition, in April 2011, Fannie Mae notified us that we
must obtain its prior approval to enter into certain settlements. Since
those announcements, the GSEs have approved our settlement agreement
with one customer and have rejected settlement agreements that were
structured differently. We have reached and implemented settlement
agreements that do not require GSE approval, but they have not been
material in the aggregate.

As noted in “- We are involved in legal proceedings and are
subject to the risk of additional legal proceedings in the future,”
in April 2013, we entered into two agreements to resolve our dispute
with
Countrywide
  
adv. & adj.
Throughout a whole country; nationwide:

Adj. 1.
 Home Loans (”
CHL
 crown-heel length.
“) and its affiliate,
Bank of
America

Bank of America (NYSE: BAC TYO: 8648 ) is the largest commercial bank in the United States in terms of deposits, and the largest company of its kind in the world.
, N.A., as successor to Countrywide Home Loans Servicing LP
(“BANA” and collectively with CHL, “Countrywide”)
regarding rescissions. Implementation of the agreements is subject to
various conditions. The resolutions of that and other disputes, assuming
they occur, may encourage other customers to seek remedies against us.
We continue to be involved in legal proceedings with other customers
with respect to rescissions that we do not consider to be collectively
material in amount. We also continue to discuss with customers their
objections to rescissions and have reached settlement terms with several
of our significant customers. In connection with some of these
settlement discussions, we have
suspended
  
v. sus·pend·ed, sus·pend·ing, sus·pends

v.tr.
1. To bar for a period from a privilege, office, or position, usually as a punishment:
 rescissions related to loans
that we believe could be included in potential settlements. As of March
31, 2013, approximately 265 rescissions, representing total potential
claim payments of approximately $19 million, were affected by our
decision to suspend such rescissions. These amounts do not include loans
covered by the two Countrywide agreements referred to above nor do they
include loans of a customer for which we consider a settlement agreement
probable, as defined in ASC 450-20. Although it is reasonably possible
that, when the discussions or legal proceedings with customers regarding
rescissions are completed, there will be a conclusion or determination
that we were not entitled to rescind in all cases, we are unable to make
a reasonable estimate or range of estimates of the potential
liability.

The benefit of our
net operating loss carryforwards

 may become
substantially limited.

As of March 31, 2013, we had approximately $2.6 billion of
net
operating losses

 for tax purposes that we can use in certain
circumstances to offset future taxable income and thus reduce our
federal income tax liability. Our ability to utilize these net operating
losses to offset future taxable income may be significantly limited if
we experience an “ownership change” as defined in Section 382
of the
Internal Revenue Code

 of 1986, as amended (the “Code”).
In general, an ownership change will occur if there is a cumulative
change in our ownership by “5-percent shareholders” (as
defined in the Code) that exceeds 50 percentage points over a rolling
three-year period. A corporation that experiences an ownership change
will generally be subject to an annual limitation on the
corporation’s subsequent use of net
operating loss

The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income.
 carryovers that
arose from pre-ownership change periods and use of losses that are
subsequently recognized with respect to assets that had a built-in-loss
on the date of the ownership change. The amount of the annual limitation
generally equals the value of the corporation immediately before the
ownership change multiplied by the long-term tax-exempt interest rate
(subject to certain adjustments). To the extent that the limitation in a
post-ownership-change year is not fully utilized, the amount of the
limitation for the succeeding year will be increased.

While we have adopted a shareholder rights agreement to minimize the
likelihood of transactions in our stock resulting in an ownership
change, future issuances of equity-linked securities or transactions in
our stock and equity-linked securities that may not be within our
control may cause us to experience an ownership change. If we experience
an ownership change, we may not be able to fully utilize our net
operating losses, resulting in additional income taxes and a reduction
in our shareholders’ equity.

We are involved in legal proceedings and are subject to the risk of
additional legal proceedings in the future.

Consumers continue to bring lawsuits against home mortgage lenders
and settlement service providers. Mortgage insurers, including MGIC,
have been involved in litigation alleging violations of the
anti-referral fee provisions of the Real Estate Settlement Procedures
Act, which is commonly known as
RESPA

, and the notice provisions of the

Fair Credit Reporting Act

, which is commonly known as FCRA. MGIC’s
settlement of class action litigation against it under RESPA became
final in
October
 see month.
 2003. MGIC settled the named plaintiffs’ claims in
litigation against it under FCRA in December 2004, following denial of
class certification in June 2004. Since December 2006, class action
litigation has been brought against a number of large lenders alleging
that their captive mortgage reinsurance arrangements
violated
  
tr.v. vi·o·lat·ed, vi·o·lat·ing, vi·o·lates
1. To break or disregard (a law or promise, for example).

2. To assault (a person) sexually.

3.
 RESPA.
Beginning in December 2011, MGIC, together with various mortgage lenders
and other mortgage insurers, have been named as defendants in twelve
lawsuits, alleged to be class actions, filed in various U.S. District
Courts. Four of those cases have previously been
dismissed
  
tr.v. dis·missed, dis·miss·ing, dis·miss·es
1. To end the employment or service of; discharge.

2.
. The
complaints in all eight of the remaining cases
allege
 v.
 various causes of
action related to the captive mortgage reinsurance arrangements of the
mortgage lenders, including that the defendants violated RESPA by paying
excessive premiums to the lenders’ captive reinsurer in relation to
the risk assumed by that captive. MGIC denies any wrongdoing and intends
to
vigorously
  
adj.
1. Strong, energetic, and active in mind or body; robust. See Synonyms at healthy.

2. Marked by or done with force and energy. See Synonyms at active.
 defend itself against the allegations in the lawsuits.
There can be no assurance that we will not be subject to further
litigation under RESPA (or FCRA) or that the outcome of any such
litigation, including the lawsuits mentioned above, would not have a
material adverse effect on us.

On April 5, 2013, the U.S. District Court approved a settlement with
the CFPB that resolves a previously-disclosed, nearly five-year-old
federal investigation of MGIC’s participation in captive
reinsurance arrangements in the mortgage insurance industry. The
settlement concludes the investigation with respect to MGIC without the
CFPB making any findings of wrongdoing. As part of the settlement, MGIC
agreed that it would not enter into any new captive reinsurance
agreement or
reinsure
  
tr.v. re·in·sured, re·in·sur·ing, re·in·sures
To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company.
 any new loans under any existing captive
reinsurance agreement for a period of ten years. MGIC had voluntarily
suspended most of its captive arrangements in 2008 in response to market
conditions and GSE requests. In connection with the settlement, MGIC
paid a civil penalty of $2.65 million.

We remain subject to various state investigations or information
requests regarding captive mortgage reinsurance arrangements, including
(1) a request received by MGIC in June 2005 from the
New York
 Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of
 Department
of
Financial Services

 for information regarding captive mortgage
reinsurance arrangements and other types of arrangements in which
lenders receive compensation; and (2) requests received from the

Minnesota
 , upper midwestern state of the United States. It is bordered by Lake Superior and Wisconsin (E), Iowa (S), South Dakota and North Dakota (W), and the Canadian provinces
 Department of Commerce beginning in February 2006 regarding
captive mortgage reinsurance and certain other matters in response to
which MGIC has provided information on several occasions, including as
recently as May 2011. Other insurance departments or other officials,
including attorneys general, may also seek information about or
investigate captive mortgage reinsurance.

Various regulators, including the CFPB, state insurance
commissioners and state attorneys general may bring actions seeking
various forms of relief, including civil penalties and injunctions
against violations of RESPA. The insurance law provisions of many states

prohibit
  
tr.v. pro·hib·it·ed, pro·hib·it·ing, pro·hib·its
1. To forbid by authority:  See Synonyms at forbid.

2.
 paying for the referral of insurance business and provide
various mechanisms to enforce this prohibition. While we believe our
practices are in conformity with applicable laws and regulations, it is
not possible to predict the eventual scope, duration or outcome of any
such reviews or investigations nor is it possible to predict their
effect on us or the mortgage insurance industry.

We are subject to comprehensive, detailed regulation by state
insurance departments. These regulations are principally designed for
the protection of our insured policyholders, rather than for the benefit
of investors. Although their scope varies, state insurance laws
generally grant broad supervisory powers to agencies or officials to
examine insurance companies and enforce rules or exercise discretion
affecting almost every significant aspect of the insurance business.
Given the recent significant losses incurred by many insurers in the
mortgage and financial
guaranty

 industries, our insurance subsidiaries
have been subject to heightened scrutiny by insurance regulators. State
insurance regulatory authorities could take actions, including changes
in capital requirements or termination of waivers of capital
requirements, that could have a material adverse effect on us. As noted
above, in January 2013, the CFPB issued rules to implement laws
requiring mortgage lenders to make ability-to-pay determinations prior
to extending credit. We are uncertain whether the CFPB will issue any
other rules or regulations that affect our business apart from any
action it may take as a result of its investigation of captive mortgage
reinsurance. Such rules and regulations could have a material adverse
effect on us.

We understand several
law firms

 have, among other things, issued
press releases to the effect that they are investigating us, including
whether the fiduciaries of our 401(k) plan breached their
fiduciary
 , in law, a person who is obliged to discharge faithfully a responsibility of trust toward another.
 duties regarding the plan’s investment in or holding of our common
stock or whether we breached other legal or fiduciary obligations to our
shareholders. We intend to defend vigorously any proceedings that may
result from these investigations. With limited exceptions, our
bylaws

 provide that our officers and 401(k) plan fiduciaries are entitled to

indemnification

 from us for claims against them.

Since December 2009, we have been involved in legal proceedings with
Countrywide in which Countrywide alleged that MGIC denied valid mortgage
insurance claims. (In our SEC reports, we refer to rescissions of
insurance and denials of claims collectively as “rescissions”
and variations of that term.) In addition to the claim amounts it
alleged MGIC had
improperly
  
adj.
1. Not suited to circumstances or needs; unsuitable:

2.
 denied, Countrywide contended it was
entitled to other damages of almost $700 million as well as
exemplary
damages

 n. often called punitive damages, these are damages requested and/or awarded in a lawsuit when the defendant’s willful acts were malicious, violent, oppressive, fraudulent, wanton, or grossly reckless.
. We sought a determination in those proceedings that we were
entitled to rescind coverage on the applicable loans. From January 1,
2008 through March 31, 2013, rescissions of coverage on
Countrywide-related loans mitigated our paid losses on the order of $445
million. This amount is the amount we estimate we would have paid had
the coverage not been rescinded. In addition, in connection with

mediation
 in law, type of intervention in which the disputing parties accept the offer of a third party to recommend a solution for their controversy. Mediation has long been a part of international law, frequently involving the use of an international commission,
 we were holding with Countrywide, we voluntarily suspended
rescissions related to loans that we believed could be covered by a
settlement. As of March 31, 2013, coverage on approximately 2,300 loans,
representing total potential claim payments of approximately $170
million, that we had determined was
rescindable
  
tr.v. re·scind·ed, re·scind·ing, re·scinds
To make void; repeal or annul.


[Latin rescindere : re-, re- + scindere, to split; see
, was affected by our
decision to suspend such rescissions.

On April 19, 2013, MGIC entered into separate settlement agreements
with CHL and BANA, pursuant to which the parties will settle the
Countrywide litigation as it relates to MGIC’s rescission
practices. These settlement agreements (the “Agreements”),
including consents and approvals that must be obtained before they are
implemented, are described in our Form 8-K filed with the SEC on April
25, 2013. The Agreements are also filed as exhibits to that Form 8-K,
although certain portions of the Agreements are redacted and covered by
a confidential treatment request. While there can be no assurance that
the Agreements will be implemented, we have determined that their
implementation is probable.

We are also discussing a settlement of a dispute with another
customer and have also determined that it is probable we will reach a
settlement with this customer. As of March 31, 2013, coverage on
approximately 300 loans, representing total potential claim payments of
approximately $20 million, was affected by our decision to suspend
rescissions for that customer.

We recorded the estimated impact of the two probable settlements
referred to above in our financial statements for the quarter ending
December 31, 2012. The aggregate impact to loss reserves for the
probable settlement agreements was an increase of approximately $100
million. This impact was somewhat offset by impacts to our return
premium
accrual

n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest.
 and premium
deficiency

 reserve. If we are not able to
implement the Agreements, we intend to defend MGIC against any related
legal proceedings, vigorously.

The flow policies at issue with Countrywide are in the same form as
the flow policies that we use with all of our customers, and the bulk
policies at issue vary from one another, but are generally similar to
those used in the majority of our Wall Street bulk transactions. The
settlement with Countrywide may encourage other customers to pursue
remedies against us. From January 1, 2008 through March 31, 2013, we
estimate that total rescissions mitigated our incurred losses by
approximately $2.9 billion, which included approximately $2.9 billion of
mitigation on paid losses, excluding $0.6 billion that would have been
applied to a deductible. At March 31, 2013, we estimate that our total
loss reserves were benefited from anticipated rescissions by
approximately $0.2 billion.

Before paying a claim, we review the loan and servicing files to
determine the appropriateness of the claim amount. All of our insurance
policies provide that we can reduce or deny a claim if the servicer did
not comply with its obligations under our insurance policy, including
the requirement to mitigate our loss by performing reasonable loss
mitigation efforts or, for example,
diligently
  
adj.
Marked by persevering, painstaking effort. See Synonyms at busy.


[Middle English, from Old French, from Latin d
 pursuing a foreclosure or

bankruptcy
 in law, settlement of the liabilities of a person or organization wholly or partially unable to meet financial obligations. The purposes are to distribute, through a court-appointed receiver, the bankrupt’s assets equitably among creditors and, in most
 relief in a timely manner. We call such reduction of claims
submitted to us “curtailments.” In 2012 and the first quarter
of 2013, curtailments reduced our average claim paid by approximately
4.1% and 4.7%, respectively. In addition, the claims submitted to us
sometimes include costs and expenses
not covered
 Health care adjective Referring to a procedure, test or other health service to which a policy holder or insurance beneficiary is not entitled under the terms of the policy or payment system–eg, Medicare. Cf Covered.
 by our insurance
policies, such as mortgage insurance premiums,
hazard insurance

 premiums
for periods after the claim date and losses resulting from property
damage that has not been repaired. These other adjustments reduced claim
amounts by less than the amount of curtailments.

After we pay a claim, servicers and insureds sometimes object to our
curtailments and other adjustments. We review these objections if they
are sent to us within 90 days after the claim was paid. Historically, we
have not had material disputes regarding our curtailments or other
adjustments.

The Agreements referred to above do not resolve assertions by
Countrywide that MGIC has improperly curtailed numerous insurance
coverage claims. Countrywide has asserted that the amount of disputed
curtailments approximates $40 million. MGIC and Countrywide have agreed
to
mediate

 this matter and to enter into
arbitration

 if the mediation
does not resolve the matter. We do not believe a loss is probable
regarding this
curtailment

 dispute and have not accrued any reserves
that would reflect an adverse outcome to this dispute. We intend to
defend vigorously our position regarding the correctness of these
curtailments under our insurance policy. Although we have not had other
material objections to our curtailment and adjustment practices, there
can be no assurances that we will not face additional challenges to such
practices.

A non-insurance subsidiary of our holding company is a shareholder
of the corporation that operates the Mortgage Electronic Registration
System (”
MERS

MERS Mortgage Electronic Registration System
MERS Microwave Earth Remote Sensing
MERS Mobile Emergency Response Support
“). Our subsidiary, as a shareholder of MERS, has
been named as a defendant (along with MERS and its other shareholders)
in eight lawsuits
asserting
  
tr.v. as·sert·ed, as·sert·ing, as·serts
1. To state or express positively; affirm:

2. To defend or maintain (one’s rights, for example).
 various causes of action arising from
allegedly
improper

 recording and foreclosure activities by MERS. Two of
those lawsuits remain pending and the other six lawsuits have been
dismissed without any further opportunity to appeal. The damages sought
in the remaining cases are substantial. We deny any wrongdoing and
intend to defend ourselves against the allegations in the lawsuits,
vigorously.

In addition to the matters described above, we are involved in other
legal proceedings in the ordinary course of business. In our opinion,
based on the facts known at this time, the ultimate resolution of these
ordinary course legal proceedings will not have a material adverse
effect on our financial position or results of operations.

Resolution of our dispute with the Internal Revenue Service could
adversely affect us.

The Internal Revenue Service (”
IRS

“) completed
examinations of our federal income tax returns for the years 2000
through 2007 and issued assessments for unpaid taxes, interest and
penalties related to our treatment of the flow-through income and loss
from an investment in a portfolio of
residual

 interests of Real Estate
Mortgage Investment Conduits (“REMICs”). This portfolio has
been managed and maintained during years prior to, during and subsequent
to the examination period. The IRS indicated that it did not believe
that, for various reasons, we had established sufficient tax basis in
the REMIC residual interests to
deduct
  
v. de·duct·ed, de·duct·ing, de·ducts

v.tr.
1. To take away (a quantity) from another; subtract.

2. To derive by deduction; deduce.

v.intr.
 the losses from taxable income.
The IRS assessment related to the REMIC issue is $190.7 million in taxes
and penalties. There would also be applicable interest which, when
computed on the amount of the assessment, is substantial. Depending on
the outcome of this matter, additional state income taxes along with any
applicable interest may become due when a final resolution is reached
and could also be substantial.

We appealed these assessments within the IRS and, in 2007, we made a
payment of $65.2 million to the
United States Department of the Treasury

 related to this assessment. In August 2010, we reached a
tentative

adj not final or definite, such as an experimental or clinical finding that has not been validated.
 settlement agreement with the IRS which was not
finalized

. We currently
expect to receive a statutory notice of deficiency (commonly referred to
as a “90-day letter”) for the disputed amounts in the second
quarter of 2013. We would then be required to litigate the validity of
the assessments in order to avoid payment to the IRS of the entire
amount assessed. Any such litigation could be lengthy and costly in
terms of legal fees and related expenses. We continue to believe that
our previously recorded tax provisions and liabilities are appropriate.
However, we would need to make appropriate adjustments, which could be
material, to our tax provision and liabilities if our view of the
probability of success in this matter changes, and the ultimate
resolution of this matter could have a material negative impact on our
effective tax rate, results of operations, cash flows and statutory
capital. In this regard, see “- Capital requirements may prevent us
from continuing to write new insurance on an uninterrupted
basis.”

Because we establish loss reserves only upon a loan default rather
than based on estimates of our ultimate losses on risk in force, losses
may have a
disproportionate
  
adj.
Out of proportion, as in size, shape, or amount.


dispro·por
 adverse effect on our earnings in certain
periods.

In
accordance

 with accounting principles generally accepted in the
United States, commonly referred to as
GAAP

See generally accepted accounting principles (GAAP).
, we establish loss reserves
only for loans in default. Reserves are established for reported
insurance losses and loss adjustment expenses based on when notices of
default on insured mortgage loans are received. Reserves are also
established for estimated losses incurred on notices of default that
have not yet been reported to us by the servicers (this is often
referred to as ”
IBNR

“). We establish reserves using estimated
claim rates and claim amounts in estimating the ultimate loss. Because
our reserving method does not take account of the impact of future
losses that could occur from loans that are not delinquent, our
obligation for ultimate losses that we expect to occur under our
policies in force at any period end is not reflected in our financial
statements, except in the case where a premium deficiency exists. As a
result, future losses may have a material impact on future results as
such losses emerge.

Because loss reserve estimates are subject to uncertainties and are
based on assumptions that are currently very volatile, paid claims may
be substantially different than our loss reserves.

We establish reserves using estimated claim rates and claim amounts
in estimating the ultimate loss on delinquent loans. The estimated claim
rates and claim amounts represent our best estimates of what we will
actually pay on the loans in default as of the reserve date and
incorporate anticipated mitigation from rescissions. We rescind coverage
on loans and deny claims in cases where we believe our policy allows us
to do so. Therefore, when establishing our loss reserves, unless we have
determined that a loss is probable and can be reasonably estimated, we
do not include additional loss reserves that would reflect an adverse
development from ongoing dispute resolution proceedings. For more
information regarding our legal proceedings, see “- We are involved
in legal proceedings and are subject to the risk of additional legal
proceedings in the future.”

The establishment of loss reserves is subject to inherent
uncertainty and requires judgment by management. Current conditions in
the housing and mortgage industries make the assumptions that we use to
establish loss reserves more volatile than they would otherwise be. The
actual amount of the claim payments may be substantially different than
our loss reserve estimates. Our estimates could be adversely affected by
several factors, including a
deterioration

n.
The process or condition of becoming worse.
 of regional or national
economic conditions, including unemployment, leading to a reduction in
borrowers’ income and thus their ability to make mortgage payments,
a drop in housing values that could result in, among other things,
greater losses on loans that have pool insurance, and may affect
borrower willingness to continue to make mortgage payments when the
value of the home is below the mortgage balance, and mitigation from
rescissions being materially less than assumed. Changes to our estimates
could result in material impact to our results of operations, even in a
stable economic environment, and there can be no assurance that actual
claims paid by us will not be substantially different than our loss
reserves.

We rely on our management team and our business could be harmed if
we are unable to retain qualified personnel.

Our industry is undergoing a fundamental shift following the
mortgage crisis: long-standing competitors have gone out of business and
two newly
capitalized

, privately-held start-ups that are not
encumbered

 with a portfolio of pre-crisis mortgages, have been formed. Former
executives from other mortgage insurers have joined these two new
competitors. In addition, in February 2013, a worldwide insurer and
reinsurer with mortgage insurance operations in
Europe
 , 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000).
 announced that it
was purchasing
CMG

CMG Chipotle Mexican Grill, Inc.
CMG Companion  St Michael and St George
CMG Computer Measurement Group
 Mortgage Insurance Company. Our success depends, in
part, on the skills, working relationships and continued services of our
management team and other key personnel. The departure of key personnel
could adversely affect the conduct of our business. In such event, we
would be required to obtain other personnel to manage and operate our
business, and there can be no assurance that we would be able to employ
a suitable replacement for the
departing
  
v. de·part·ed, de·part·ing, de·parts

v.intr.
1. To go away; leave.

2. To die.

3.
 individuals, or that a
replacement could be hired on terms that are
favorable
  
adj.
1. Advantageous; helpful:

2. Encouraging; propitious:

3.
 to us. We
currently have not entered into any employment agreements with our
officers or key personnel. Volatility or lack of performance in our
stock price may affect our ability to retain our key personnel or
attract replacements should key personnel depart.

Loan modification and other similar programs may not continue to
provide material benefits to us and our losses on loans that re-default
can be higher than what we would have paid had the loan not been
modified.

Beginning in the fourth quarter of 2008, the federal government,
including through the
Federal Deposit Insurance Corporation
 (FDIC), an independent U.S. federal executive agency designed to promote public confidence in banks and to provide insurance coverage for bank deposits up to $100,000.
 and the
GSEs, and several lenders have adopted programs to modify loans to make
them more affordable to borrowers with the goal of reducing the number
of foreclosures. During 2010, 2011, 2012, and the first quarter of 2013,
we were notified of modifications that cured delinquencies that had they
become paid claims would have resulted in approximately $3.2 billion,
$1.8 billion, $1.2 billion and $247 million, respectively, of estimated
claim payments. As noted below, we cannot predict with a high degree of
confidence what the ultimate re-default rate on these modifications will
be. Although the recent re-default rate has been lower, for internal
reporting and planning purposes, we assume approximately 50% of these
modifications will ultimately re-default, and those re-defaults may
result in future claim payments. Because modifications cure the defaults
with respect to the previously defaulted loans, our loss reserves do not
account for potential re-defaults unless at the time the reserve is
established, the re-default has already occurred. Based on information
that is provided to us, most of the modifications resulted in reduced
payments from interest rate and/or amortization period adjustments; less
than 5% resulted in principal
forgiveness

Angelica, Suor

is forgiven by the Virgin Mary for ill-considered suicide. [Ital. Opera: Puccini, Suor Angelica, Westerman, 364]

Bishop of Digne
.

One loan modification program is the Home Affordable Modification
Program (”
HAMP

HAMP Horizontal Avionics Modernization Planning
“). Some of HAMP’s eligibility criteria
relate to the borrower’s current income and non-mortgage debt
payments. Because the GSEs and servicers do not share such information
with us, we cannot determine with certainty the number of loans in our
delinquent inventory that are eligible to participate in HAMP. We
believe that it could take several months from the time a borrower has
made all of the payments during HAMP’s three month “trial
modification” period for the loan
to be reported

 to us as a cured
delinquency.

We rely on information provided to us by the GSEs and servicers. We
do not receive all of the information from such sources that is required
to determine with certainty the number of loans that are participating
in, or have successfully completed, HAMP. We are aware of approximately
8,650 loans in our primary delinquent inventory at March 31, 2013 for
which the HAMP trial period has begun and which trial periods have not
been reported to us as completed or cancelled. Through March 31, 2013
approximately 47,200 delinquent primary loans have cured their
delinquency after entering HAMP and are not in default. In 2012 and the
first quarter of 2013, approximately 17% and 14%, respectively, of our
primary cures were the result of a modification, with HAMP accounting
for approximately 70% and 75%, respectively, of those modifications in
each of those periods. By comparison, in 2010, approximately 27% of our
primary cures were the result of a modification, with HAMP accounting
for approximately 60% of those modifications. We believe that we have
realized the majority of the benefits from HAMP because the number of
loans insured by us that we are aware are entering HAMP trial
modification periods has decreased significantly since 2010.
Announcements made by the U.S. Treasury in 2012 extended the end date of
the HAMP program through 2013, expanded the eligibility criteria of HAMP
and increased lenders’ incentives to modify loans through principal
forgiveness. Approximately 65% of the loans in our primary delinquent
inventory are guaranteed by the GSEs. The GSEs have informed us that
they already use expanded criteria (beyond the HAMP guidelines) for
determining eligibility for loan modification and currently do not offer
principal forgiveness. Therefore, we currently expect new loan
modifications will continue to only modestly mitigate our losses in
2013.

In 2009, the GSEs began offering the Home Affordable Refinance
Program (“HARP”). HARP allows borrowers who are not delinquent
but who may not otherwise be able to refinance their loans under the
current GSE underwriting standards, to refinance their loans. We allow
the HARP refinances on loans that we insure, regardless of whether the
loan meets our current underwriting standards, and we account for the
refinance as a loan modification (even where there is a new lender)
rather than new insurance written. To
incent
  
tr.v. in·cent·ed, in·cent·ing, in·cents
To incentivize:  
 lenders to allow more
current borrowers to refinance their loans, in October 2011, the GSEs
and their
regulator

n the mechanical part of a gas delivery system that controls gas pressure that allows a manageable flow of drug vapor to escape.


regulator

see reducing valve.
, FHFA, announced an expansion of HARP. The expansion
includes, among other changes, releasing certain representations in
certain circumstances benefitting the GSEs. We have agreed to allow
these additional HARP refinances, including releasing the insured in
certain circumstances from certain rescission rights we would have under
our policy. While an expansion of HARP may result in fewer delinquent
loans and claims in the future, our ability to rescind coverage will be
limited in certain circumstances. We are unable to predict what net
impact these changes may have on our incurred or paid losses. In April
2013, the FHFA announced that HARP had been extended through 2015.
Approximately 12% of our primary insurance in force has benefitted from
HARP and is still in force.

The effect on us of loan modifications depends on how many modified
loans subsequently re-default, which in turn can be affected by changes
in housing values. Re-defaults can result in losses for us that could be
greater than we would have paid had the loan not been modified. At this
point, we cannot predict with a high degree of confidence what the
ultimate re-default rate will be. In addition, because we do not have
information in our database for all of the parameters used to determine
which loans are eligible for modification programs, our estimates of the
number of loans qualifying for modification programs are inherently
uncertain. If legislation is enacted to permit a portion of a
borrower’s mortgage loan balance to be reduced in bankruptcy and if
the borrower re-defaults after such reduction, then the amount we would
be responsible to cover would be calculated after adding back the
reduction. Unless a lender has obtained our prior approval, if a
borrower’s mortgage loan balance is reduced outside the bankruptcy
context, including in association with a loan modification, and if the
borrower re-defaults after such reduction, then under the terms of our
policy the amount we would be responsible to cover would be calculated
net of the reduction.

Eligibility under certain loan modification programs can also
adversely affect us by creating an incentive for borrowers who are able
to make their mortgage payments to become delinquent in an attempt to
obtain the benefits of a modification. New notices of delinquency
increase our incurred losses.

If the volume of low down payment home mortgage originations
declines, the amount of insurance that we write could decline, which
would reduce our revenues.

The factors that affect the volume of low down payment mortgage
originations include:

* restrictions on mortgage credit due to more stringent underwriting
standards, liquidity issues and risk-retention requirements associated
with non-QRM loans affecting lenders,

* the level of home mortgage interest rates and the deductibility of
mortgage interest for income tax purposes,

* the health of the domestic economy as well as conditions in
regional and local economies,

* housing affordability,

* population trends, including the rate of household formation,

* the rate of home price appreciation, which in times of heavy

refinancing

 can affect whether refinance loans have loan-to-value ratios
that require private mortgage insurance, and

* government housing policy encouraging loans to first-time
homebuyers.

As noted above, in January 2013, the CFPB issued rules to implement
laws requiring mortgage lenders to make ability-to-pay determinations
prior to extending credit. We are uncertain whether this Bureau will
issue any other rules or regulations that affect our business or the
volume of low down payment home mortgage originations. Such rules and
regulations could have a material adverse effect on our financial
position or results of operations.

A decline in the volume of low down payment home mortgage
originations could decrease demand for mortgage insurance, decrease our
new insurance written and reduce our revenues. For other factors that
could decrease the demand for mortgage insurance, see “- The amount
of insurance we write could be adversely affected if the definition of
Qualified Residential Mortgage results in a reduction of the number of
low down payment loans available to be insured or if lenders and
investors select alternatives to private mortgage insurance” and
“- The implementation of the Basel III capital accord, or other
changes to our customers’ capital requirements, may discourage the
use of mortgage insurance.”

Competition or changes in our relationships with our customers could
reduce our revenues or increase our losses.

As noted above, the FHA substantially increased its market share
beginning in 2008 and beginning in 2011, that market share began to
gradually decline. It is difficult to predict the FHA’s future
market share due to, among other factors, different loan eligibility
terms between the FHA and the GSEs, future increases in guarantee fees
charged by the GSEs, changes to the FHA’s annual premiums, and the
total profitability that may be realized by mortgage lenders from
securitizing loans through Ginnie Mae when compared to securitizing
loans through Fannie Mae or Freddie Mac.

In recent years, the level of competition within the private
mortgage insurance industry has been intense as many large mortgage
lenders reduced the number of private mortgage insurers with whom they
do business. At the same time, consolidation among mortgage lenders has
increased the share of the mortgage lending market held by large
lenders. During 2012 and the first quarter of 2013, approximately 10%
and 8%, respectively, of our new insurance written was for loans for
which one lender was the original insured, although revenue from such
loans was significantly less than 10% of our revenues during each of
those periods. Our private mortgage insurance competitors include:

* Genworth Mortgage Insurance Corporation,

* United Guaranty Residential Insurance Company,

*
Radian

n. Abbr. rad
A unit of angular measure equal to the angle subtended at the center of a circle by an arc equal in length to the radius of the circle.
 Guaranty Inc.,

* CMG Mortgage Insurance Company (whose owners have agreed to sell
it to a worldwide insurer and reinsurer),

*
Essent

 Guaranty, Inc., and

*
NMI

 Holdings, Inc.

Until 2010 the mortgage insurance industry had not had new entrants
in many years. In 2010, Essent Guaranty, Inc. began writing new mortgage
insurance. Essent has publicly reported that one of our customers,

JPMorgan Chase

, is one of its investors. During 2012, another new
company, NMI Holdings Inc., raised $550 million in order to enter the
mortgage insurance business. NMI Holdings has been approved as an
eligible mortgage insurer by the GSEs and it announced in April 2013
that it began writing new business. In addition, in February 2013, a
worldwide insurer and reinsurer with mortgage insurance operations in
Europe announced that it was purchasing CMG Mortgage Insurance Company.
The perceived increase in credit quality of loans that are being insured
today, the deterioration of the financial strength ratings of the
existing mortgage insurance companies and the possibility of a decrease
in the FHA’s share of the mortgage insurance market may encourage
additional new entrants.

Our relationships with our customers could be adversely affected by
a variety of factors, including tightening of and
adherence
 /ad·her·ence/ () the act or condition of sticking to something.


immune adherence
 to our
underwriting guidelines, which have resulted in our declining to insure
some of the loans originated by our customers and rescission of coverage
on loans that affect the customer. We have ongoing discussions with
lenders who are significant customers regarding their objections to our
rescissions.

We believe many lenders assess a mortgage insurer’s financial
strength rating and risk-to-capital ratio as important elements of the
process through which they select mortgage insurers. As a result of
MGIC’s less than investment grade financial strength ratings and
its risk-to-capital ratio level being higher than that of other mortgage
insurers, MGIC may be competitively
disadvantaged

 with these lenders.
MGIC’s financial strength rating from Moody’s is B2 (on review
for upgrade) and from Standard & Poor’s is B (with a stable
outlook). It is possible that MGIC’s financial strength ratings
could decline from these levels. While we expect MGIC’s
risk-to-capital ratio to continue to comply with the current Capital
Requirements, its level will depend primarily on the level of incurred
losses, any settlement with the IRS, and the volume of new risk written.
Our incurred losses are dependent upon factors that make prediction of
their amounts difficult and any forecasts are subject to significant
volatility. Conditions that could negatively affect the risk-to-capital
ratio include high unemployment rates, low cure rates, low housing
values, changes to our current rescission practices and unfavorable
resolution of ongoing legal proceedings.

Downturns in the domestic economy or declines in the value of
borrowers’ homes from their value at the time their loans closed
may result in more homeowners defaulting and our losses increasing.

Losses result from events that reduce a borrower’s ability to
continue to make mortgage payments, such as unemployment, and whether
the home of a borrower who defaults on his mortgage can be sold for an
amount that will cover unpaid principal and interest and the expenses of
the sale. In general, favorable economic conditions reduce the
likelihood that borrowers will lack sufficient income to pay their
mortgages and also
favorably
  
adj.
1. Advantageous; helpful:

2. Encouraging; propitious:

3.
 affect the value of homes, thereby reducing
and in some cases even eliminating a loss from a mortgage default. A
deterioration in economic conditions, including an increase in
unemployment, generally increases the likelihood that borrowers will not
have sufficient income to pay their mortgages and can also adversely
affect housing values, which in turn can influence the willingness of
borrowers with sufficient resources to make mortgage payments to do so
when the mortgage balance exceeds the value of the home. Housing values
may decline even absent a deterioration in economic conditions due to
declines in demand for homes, which in turn may result from changes in
buyers’ perceptions of the potential for future appreciation,
restrictions on and the cost of mortgage credit due to more stringent
underwriting standards, liquidity issues and risk-retention requirements
associated with non-QRM loans affecting lenders, higher interest rates
generally or changes to the deductibility of mortgage interest for
income tax purposes, or other factors. The residential mortgage market
in the United States has for some time experienced a variety of poor or

worsening
  
tr. & intr.v. wors·ened, wors·en·ing, wors·ens
To make or become worse.

Noun 1. worsening – process of changing to an inferior state
decline in quality, deterioration, declension
 economic conditions, including a material nationwide decline
in housing values, with declines continuing into early 2012 in a number
of geographic areas. Although housing values have recently been
increasing in certain markets, they generally remain significantly below
their early 2007 levels. Changes in housing values and unemployment
levels are inherently difficult to forecast given the uncertainty in the
current market environment, including uncertainty about the effect of
actions the federal government has taken and may take with respect to
tax policies, mortgage finance programs and policies, and housing
finance reform.

The mix of business we write also affects the likelihood of losses
occurring.

Even when housing values are stable or rising, mortgages with
certain characteristics have higher probabilities of claims. These
characteristics include loans with loan-to-value ratios over 95% (or in
certain markets that have experienced declining housing values, over
90%), FICO credit scores below 620, limited underwriting, including
limited borrower documentation, or higher total debt-to-income ratios,
as well as loans having combinations of higher risk factors. As of March
31, 2013, approximately 23.9% of our primary risk in force consisted of
loans with loan-to-value ratios greater than 95%, 7.6% had FICO credit
scores below 620, and 7.9% had limited underwriting, including limited
borrower documentation, each
attribute

 as determined at the time of loan

origination

. A material portion of these loans were written in 2005 –
2007 or the first quarter of 2008. In accordance with industry practice,
loans approved by GSEs and other
automated
  
v. au·to·mat·ed, au·to·mat·ing, au·to·mates

v.tr.
1. To convert to automatic operation:

2.
 underwriting systems under
“doc waiver” programs that do not require verification of
borrower income are classified by us as “full documentation.”
For additional information about such loans, see
footnote

 (1) to the
Additional Information at the end of this press release.

From time to time, in response to market conditions, we change the
types of loans that we insure and the guidelines under which we insure
them. Our underwriting guidelines are available on our website at
http://www.mgic.com/underwriting/index.html. In addition, we make
exceptions to our underwriting guidelines on a loan-by-loan basis and
for certain customer programs. Together, the number of loans for which
exceptions were made accounted for fewer than 2% of the loans we insured
in 2012 and the first quarter of 2013.

During the second quarter of 2012, we began writing a portion of our
new insurance under an endorsement to our master policy that limits our
ability to rescind coverage on loans that meet the conditions in that
endorsement, which is filed as Exhibit 99.7 to our quarterly report on
Form 10-Q for the quarter ended March 31, 2012 (filed with the SEC on
May 10, 2012). We estimate that approximately 52% of our new insurance
written in the first quarter of 2013, was written under this
endorsement. We expect that eventually a significant portion of our new
insurance written will have rescission terms equivalent to those in this
endorsement.

As of March 31, 2013, approximately 23.4% of our primary risk in
force written through the flow channel, and 2.1% of our primary risk in
force written through the bulk channel, consisted of
adjustable rate

 mortgages in which the initial interest rate may be adjusted during the
five years after the mortgage closing (“ARMs”). In the current
interest rate environment, interest rates resetting in the near future
are unlikely to exceed the interest rates at origination. We
classify
  
tr.v. clas·si·fied, clas·si·fy·ing, clas·si·fies
1. To arrange or organize according to class or category.

2. To designate (a document, for example) as confidential, secret, or top secret.
 as
fixed rate loans adjustable rate mortgages in which the initial interest
rate is fixed during the five years after the mortgage closing. If
interest rates should rise between the time of origination of such loans
and when their interest rates may be reset, claims on ARMs and
adjustable rate mortgages whose interest rates may only be adjusted
after five years would be substantially higher than for fixed rate
loans. In addition, we have insured “interest-only” loans,
which may also be ARMs, and loans with negative amortization features,
such as pay option ARMs. We believe claim rates on these loans will be
substantially higher than on loans without scheduled payment increases
that are made to borrowers of comparable credit quality.

Although we attempt to incorporate these higher expected claim rates
into our underwriting and pricing models, there can be no assurance that
the premiums earned and the associated investment income will be
adequate to compensate for actual losses even under our current
underwriting guidelines. We do, however, believe that given the various
changes in our underwriting guidelines that were effective beginning in
the first quarter of 2008, our insurance written beginning in the second
quarter of 2008 will generate underwriting profits.

The premiums we charge may not be adequate to compensate us for our
liabilities for losses and as a result any inadequacy could materially
affect our financial condition and results of operations.

We set premiums at the time a policy is issued based on our
expectations regarding likely performance over the long-term. Our
premiums are subject to approval by state regulatory agencies, which can
delay or limit our ability to increase our premiums. Generally, we
cannot
cancel

 the mortgage insurance coverage or adjust renewal premiums
during the life of a mortgage insurance policy. As a result, higher than
anticipated claims generally cannot be offset by premium increases on
policies in force or mitigated by our non-renewal or cancellation of
insurance coverage. The premiums we charge, and the associated
investment income, may not be adequate to compensate us for the risks
and costs associated with the insurance coverage provided to customers.
An increase in the number or size of claims, compared to what we
anticipate, could adversely affect our results of operations or
financial condition.

In January 2008, we announced that we had decided to stop writing
the portion of our bulk business that insures loans included in Wall
Street securitizations because the performance of such loans
deteriorated materially in the fourth quarter of 2007 and this
deterioration was materially worse than we experienced for loans insured
through the flow channel or loans insured through the remainder of our
bulk channel. As of December 31, 2007 we established a premium
deficiency reserve of approximately $1.2 billion. As of March 31, 2013,
the premium deficiency reserve was $72 million, which reflects the
present value of expected future losses and expenses that exceeds the
present value of expected future premium and already established loss
reserves on these bulk transactions.

We continue to experience material losses, especially on the 2006
and 2007 books. The ultimate amount of these losses will depend in part
on general economic conditions, including unemployment, and the
direction of home prices, which in turn will be influenced by general
economic conditions and other factors. Because we cannot predict future
home prices or general economic conditions with confidence, there is
significant uncertainty
surrounding
  
tr.v. sur·round·ed, sur·round·ing, sur·rounds
1. To extend on all sides of simultaneously; encircle.

2. To enclose or confine on all sides so as to bar escape or outside communication.

n.
 what our ultimate losses will be on
our 2006 and 2007 books. Our current expectation, however, is that these
books will continue to generate material incurred and paid losses for a
number of years. There can be no assurance that an additional premium
deficiency reserve on Wall Street Bulk or on other portions of our
insurance portfolio will not be required.

It is uncertain what effect the extended timeframes in the
foreclosure process, due to moratoriums, suspensions or issues arising
from the investigation of servicers’ foreclosure procedures, will
have on us.

In response to the significant increase in the number of
foreclosures that began in 2009, various government entities and private
parties have from time to time enacted foreclosure (or equivalent)
moratoriums and suspensions (which we collectively refer to as
moratoriums). In October 2010, a number of mortgage servicers
temporarily halted some or all of the foreclosures they were processing
after discovering deficiencies in their foreclosure processes and those
of their service providers. In response to the deficiencies, some states
changed their foreclosure laws to require additional review and
verification of the accuracy of foreclosure filings. Some states also
added requirements to the foreclosure process, including mediation
processes and requirements to file new affidavits. Certain state courts
have issued rulings calling into question the validity of some existing
foreclosure practices. These actions halted or significantly delayed
foreclosures. Furthermore five of the nation’s largest mortgage
servicers agreed to implement new servicing and foreclosure practices as
part of a settlement announced in February 2012, with the federal
government and the attorneys general of 49 states.

Past moratoriums or delays were designed to afford time to determine
whether loans could be modified and did not stop the accrual of interest
or affect other expenses on a loan, and we cannot predict whether any
future
moratorium

 or
lengthened
  
tr. & intr.v. length·ened, length·en·ing, length·ens
To make or become longer.


lengthen·er n.
 timeframes would do so. Therefore,
unless a loan is cured during a moratorium or delay, at the completion
of a foreclosure, additional interest and expenses may be due to the
lender from the borrower. In some circumstances, our paid claim amount
may include some additional interest and expenses. For moratoriums or
delays resulting from investigations into servicers and other
parties’ actions in foreclosure proceedings, our
willingness to pay

 additional interest and expenses may be different, subject to the terms
of our mortgage insurance policies. The various moratoriums and extended
timeframes may temporarily delay our receipt of claims and may increase
the length of time a loan remains in our delinquent loan inventory.

We do not know what effect improprieties that may have occurred in a
particular foreclosure have on the validity of that foreclosure, once it
was completed and the property transferred to the lender. Under our
policy, in general, completion of a foreclosure is a
condition precedent
 n. 1) in a contract, an event which must take place before a party to a contract must perform or do their part. 2) in a deed to real property, an event which has to occur before the title (or other right) to the property will actually be in the
 to the filing of a claim. Beginning in 2011 and from time to time,
various courts have ruled that servicers did not provide sufficient
evidence that they were the holders of the mortgages and therefore they
lacked authority to
foreclose
  
v. fore·closed, fore·clos·ing, fore·clos·es

v.tr.
1.
a. To deprive (a mortgagor) of the right to redeem mortgaged property, as when payments have not been made.

b.
. Some courts in other jurisdictions have
considered similar issues and reached similar conclusions, but other
courts have reached different conclusions. These decisions have not had
a direct impact on our claims processes or rescissions.

We are
susceptible
 /sus·cep·ti·ble/ ()
1. readily affected or acted upon.

2. lacking immunity or resistance and thus at risk of infection.


adj.
 to disruptions in the servicing of mortgage loans
that we insure.

We depend on reliable, consistent third-party servicing of the loans
that we insure. Over the last several years, the mortgage loan servicing
industry has experienced consolidation. The resulting reduction in the
number of servicers could lead to disruptions in the servicing of
mortgage loans covered by our insurance policies. In addition, current
housing market trends have led to significant increases in the number of
delinquent mortgage loans requiring servicing. These increases have
strained the resources of servicers, reducing their ability to undertake
mitigation efforts that could help limit our losses, and have resulted
in an increasing amount of delinquent loan servicing being transferred
to specialty servicers. The transfer of servicing can cause a
disruption
 /dis·rup·tion/ () a morphologic defect resulting from the extrinsic breakdown of, or interference with, a developmental process.
 in the servicing of delinquent loans. Future housing market conditions
could lead to additional increases in delinquencies. Managing a
substantially higher volume of non-performing loans could lead to
increased disruptions in the servicing of mortgages. Investigations into
whether servicers have acted improperly in foreclosure proceedings may
further strain the resources of servicers.

If interest rates decline, house prices appreciate or mortgage
insurance cancellation requirements change, the length of time that our
policies remain in force could decline and result in declines in our
revenue.

In each year, most of our premiums are from insurance that has been
written in prior years. As a result, the length of time insurance
remains in force, which is also generally referred to as persistency, is
a significant
determinant
 a polynomial expression that is inherent in the entries of a square matrix. The size n of the square matrix, as determined from the number of entries in any row or column, is called the order of the determinant.
 of our revenues. The factors affecting the
length of time our insurance remains in force include:

* the level of current mortgage interest rates compared to the
mortgage
coupon

 rates on the insurance in force, which affects the
vulnerability of the insurance in force to refinancings, and

* mortgage insurance cancellation policies of mortgage investors
along with the current value of the homes underlying the mortgages in
the insurance in force.

Our persistency rate was 78.7% at March 31, 2013, compared to 79.8%
at December 31, 2012 and 82.9% at December 31, 2011. During the 1990s,
our year-end persistency ranged from a high of 87.4% at December 31,
1990 to a low of 68.1% at December 31, 1998. Since 2000, our year-end
persistency ranged from a high of 84.7% at December 31, 2009 to a low of
47.1% at December 31, 2003.

Current mortgage interest rates are at or near historic lows. The
high-quality mortgages insured by us in recent years that have not
experienced significant declines in underlying home prices are
especially vulnerable to refinancing. Future premiums on our insurance
in force represent a material portion of our claims paying resources. We
are unsure what the impact on our revenues will be as mortgages are
refinanced, because the number of policies we write for replacement
mortgages may be more or less than the
terminated
  
v. ter·mi·nat·ed, ter·mi·nat·ing, ter·mi·nates

v.tr.
1. To bring to an end or halt:
 policies associated
with the refinanced mortgages.

Your ownership in our company may be diluted by additional capital
that we raise or if the holders of our outstanding convertible debt
convert that debt into shares of our common stock.

Any future issuance of equity securities may
dilute

v.
To reduce a solution or mixture in concentration, quality, strength, or purity, as by adding water.

adj.
Thinned or weakened by diluting.
 your ownership
interest in our company. In addition, the market price of our common
stock could decline as a result of sales of a large number of shares or
similar securities in the market or the perception that such sales could
occur.

We have $389.5 million principal amount of 9% Convertible Junior
Subordinated Debentures outstanding. The principal amount of the
debentures is currently convertible, at the holder’s option, at an
initial conversion rate, which is subject to adjustment, of 74.0741
common shares per $1,000 principal amount of debentures. This represents
an initial conversion price of approximately $13.50 per share. On April
1, 2013, we paid all interest that we had previously elected to
defer
  
v. de·ferred, de·fer·ring, de·fers

v.tr.
1. To put off; postpone.

2. To postpone the induction of (one eligible for the military draft).

v.intr.
 on
these debentures. We continue to have the right, and may elect, to defer
interest payable under the debentures in the future. If a holder elects
to convert its debentures, the interest that has been deferred on the
debentures being converted is also converted into shares of our common
stock. The conversion rate for such deferred interest is based on the
average price that our shares traded at during a 5-day period
immediately prior to the election to convert the associated debentures.
We may elect to pay cash for some or all of the shares issuable upon a
conversion of the debentures. We also have $345 million principal amount
of 5% Convertible Senior Notes and $500 million principal amount of 2%
Convertible Senior Notes outstanding. The 5% Convertible Senior Notes
are convertible, at the holder’s option, at an initial conversion
rate, which is subject to adjustment, of 74.4186 shares per $1,000
principal amount at any time prior to the maturity date. This represents
an initial conversion price of approximately $13.44 per share. The 2%
Convertible Senior Notes are convertible, at the holder’s option,
at an initial conversion rate, which is subject to adjustment, of
143.8332 shares per $1,000 principal amount at any time prior to the
maturity date. This represents an initial conversion price of
approximately $6.95 per share. We do not have the right to defer
interest on our Convertible Senior Notes.

Our debt obligations materially exceed our holding company cash and
investments

At March 31, 2013, we had approximately $671 million in cash and
investments at our holding company and our holding company’s debt
obligations were $1,335 million in aggregate principal amount,
consisting of $100 million of Senior Notes due in November 2015, $345
million of Convertible Senior Notes due in 2017, $500 million of
Convertible Senior Notes due in 2020 and $390 million of Convertible
Junior Debentures due in 2063. Annual debt service on the debt
outstanding as of March 31, 2013, is approximately $68 million.

The Senior Notes, Convertible Senior Notes and Convertible Junior
Debentures are obligations of our holding company, MGIC Investment
Corporation, and not of its subsidiaries. Our holding company has no
material sources of cash inflows other than investment income. The
payment of dividends from our insurance subsidiaries, which prior to
raising capital in the public markets in 2008, 2010 and 2013, had been
the principal source of our holding company cash
inflow
  
n.
1. The act or process of flowing in or into:

2.
, is restricted
by insurance regulation. MGIC is the principal source of dividend-paying
capacity. Since 2008, MGIC has not paid any dividends to our holding
company. Through 2013, MGIC cannot pay any dividends to our holding
company without approval from the OCI. In connection with the approval
of MIC as an eligible mortgage insurer, Freddie Mac and Fannie Mae have
imposed dividend restrictions on MGIC and MIC through December 31, 2013.
Any additional capital contributions to our subsidiaries would decrease
our holding company cash and investments.

We could be adversely affected if personal information on consumers
that we maintain is improperly disclosed.

As part of our business, we maintain large amounts of personal
information on consumers. While we believe we have appropriate
information security policies and systems to prevent unauthorized
disclosure, there can be no assurance that unauthorized disclosure,
either through the actions of third parties or employees, will not
occur. Unauthorized disclosure could adversely affect our reputation and

expose

 us to material claims for damages.

The implementation of the Basel III capital accord, or other changes
to our customers’ capital requirements, may discourage the use of
mortgage insurance.

In 1988, the
Basel Committee on Banking Supervision

 (the “Basel
Committee”) developed the Basel Capital Accord (
Basel I

), which set
out international benchmarks for assessing banks’ capital adequacy
requirements. In June 2005, the Basel Committee issued an update to
Basel I (as revised in November 2005,
Basel II

). Basel II was
implemented by many banks in the United States and many other countries
in 2009 and 2010.

In December 2010, the Basel Committee released the nearly final
version of Basel III. In June 2012, federal regulators requested public
comments on proposed rules to implement Basel III. The proposed Basel
III rules would increase the capital requirements of many banking
organizations. Among other provisions, the proposed rules contain a
range of risk weightings for residential mortgages held for investment
by certain banking organizations, with the specific weighting dependent
upon, among other things, a loan’s LTV. Unlike previous Basel
rules, the proposed Basel III rules do not consider mortgage insurance
when calculating a loan’s risk weighting. The rules, if implemented
as proposed, may reduce the incentive of banking organizations to
purchase mortgage insurance for loans held for investment. The proposed
Basel III rules continue to afford FHA-insured loans and Ginnie Mae

mortgage-backed securities

 (”
MBS

“) a lower risk weighting than
loans held for investment by the banking organization and for Fannie Mae
and Freddie Mac MBS. Therefore, with respect to capital requirements,
FHA-insured loans will continue to have a competitive advantage over
loans insured by private mortgage insurance and held for investment or
sold to and securitized by the GSEs. Public comments to the proposed
rules were due by October 22, 2012. It is uncertain what form the final
rules will take. We are continuing to evaluate the potential effects of
the proposed Basel III rules on our business.

Our Australian operations may suffer significant losses.

We began
international operations

 in
Australia
 , smallest continent, between the Indian and Pacific oceans. With the island state of Tasmania to the south, the continent makes up the Commonwealth of Australia, a federal parliamentary state (2005 est. pop.
, where we started to
write business in June 2007. Since 2008, we are no longer writing new
business in Australia. Our existing risk in force in Australia is
subject to the risks described in the general economic and insurance
business-related factors discussed above. In addition to these risks, we
are subject to a number of other risks from having deployed capital in
Australia, including foreign currency exchange rate fluctuations and
interest-rate volatility particular to Australia.

SOURCE MGIC Investment Corporation