Gtarras

Goldman Correlation Desk Profits from CIT CDS; Is Sallie Mae Up Next?

this better stop. i will be watching Sallie for coming weeks now. for how long are we going to allow these sharks to destroy businesses out of their greed??? its been all too familiar tactic recently- find a wobbly business driven by short term funding (stupid, maybe, but it worked for so long), preferably big, ie Lehman, CIT, drive up their CDS, cause panic, stop creditors from extending credit lines to the victim, kill their business. SEC, you have to stop this madness!!!!!!

Rise of the Silver Surfer and Mortgage Insurance Wasteland

Mortgage guy explained it the best. The bottom line for these three companies is the fact that the amount of claims they have paid out over the past 1.5 years, which are as you know were horrible for anything mortgage related, were just slightly higher than the revenue they have generated.

The problem they face, and the reason the stock prices are beaten down so much (I believe), lies in the regulatory realm of things:

First of all, they have to build up reserves based on the delinquencies they have in their books. These cos have built the reserves that are in multiples of their annual claims paid (even for 08-09). The reserves drain their liquidity, so the market is concerned they wont be able to pay on their debt due in two-three years. Remember, it takes forever for them to pay claims after a borrower becomes delinquent (if they default).

Also, because of reserve build up, there is a concern they might be forced to stop writing business, because the amount of risk they take on vs. the capital they have (which is being more and more restricted by the reserve issue) is limited by the regulators. Thus, MGIC had to play the regulatory trickery with the new entity set-up.

I am not an investor in any of them, but back in previous life worked at one of them (12 years ago). I do find their situation fascinating though, as so many confluent factors are affecting their balance sheets and valuations. For example, if things start to turn around in the housing market, and MIs will be able to reduce reserves, watch out.

I do think they will survive, and so few analysts that upgraded MGIC in the past few days following their report.

On Jul 19 07:27 PM Economic Disconnect wrote:

> The Mortgage Guy,
> Thanks for the in depth comment. You clearly have a real understanding
> of this issue. I appreciate your input. Do you think both MTG and
> PMI go on, or will one win out?

Rise of the Silver Surfer and Mortgage Insurance Wasteland

As far as MGIC is concerned, you clearly have no clue how the insurance business works. Neither do the financial media people who write the headlines. Thats the reason you get shocked when you see the stock price charts in your piece. For example, you write :"MTG is basically done." Ahmmm. NO. I dont mean to be a smart ass, but this business is not easy to understand, especially the reporting and regulatory sides of it. maybe it'd make sense not to write about it in such an assertive way?