MBIA talks tough on putbacks, posts 3Q loss

In terms of rivalry, mortgage bond insurer MBIA (MBI) is doing comparatively well in posting a third quarter $213 million loss after Tuesday’s market close. After all, one of its closest competitors, Ambac, filed for bankruptcy this week. And during the conference call on earnings Wednesday, CEO Jay Brown was confident a similar fate will not befall MBIA. “We think the (government stimulus) QE2 will amplify the steady economic recovery, ” he said, “this will be reflective in reduced volatility” in MBIA’s business. MBIA narrowed its loss from a year ago when it posted a net loss of $728 million in the third quarter in 2009. MBIA said it reduced its expectations of future losses on RMBS exposures during 3Q. It also increased its expectations of future claims payments by $107 million due to the likelihood of more delinquencies than the second quarter. However, this increase was more than offset by additional expected recoveries of $131 million, primarily from contractual claims related to ineligible mortgages. “We are where we hoped to be,” Brown added. MBIA estimates for expected investor recoveries related to putbacks of ineligible mortgages totaled $2.2 billion as of Sept. 30. However, MBIA said putback recoveries impact the insurer minimally in 3Q. “We’ve seen a large number of the originators and underwriters of mortgage securities the have acknowledged a greater involvement in putback liabilities in their estimates,” Brown said. “From our perspective, nothing has really changed in put-backs. Our contractual rights are the same, nothing significant has been decided in the quarter.” According to the MBIA earning report, adjusted pre-tax loss for the third quarter of 2010 was $68 million compared with an adjusted pre-tax loss of $446 million in the third quarter of 2009. MBIA CFO Chuck Chaplin said “insured losses continued to moderate in the third quarter compared to those of 2008 and 2009. The liquidity position in MBIA was significantly improved compared to earlier this year.” In the third quarter of 2010, the company estimated $172 million of incremental economic losses, which was backed by pools of commercial mortgage-backed securities (CMBS). [Update 1: clarifies CMBS losses, putback perspective] Write to Jacob Gaffney. The author holds no relevant investments.

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