The stock of MGIC (MTG) shot up 18% in morning trading after Freddie Mac proposed a new deal that would let the mortgage insurer write new business in states where it still lacks waivers on capital requirements.
Without the waivers, the insurer would not be able to write new Freddie Mac business in jurisdictions where it does not meet the capital standards set by local regulators. The deal does not include the state of Wisconsin, home of the insurer's chief regulator.
The agreement, if accepted by the firm's Wisconsin regulator, would clear up one part of a dilemma that has been dogging the mortgage firm for several months.
Being able to write new business with Freddie Mac is critical to MGIC's success in enhancing its capital position, but the GSE and the Office of the Commissioner of Insurance of Wisconsin have been debating the terms of waiver agreements for months.
Earlier this year, Freddie said MGIC's mortgage insurance unit could continue writing business in jurisdictions without state regulatory approvals as long as it makes a $200 million capital infusion to MGIC, the holding company, before Sept. 30.
In addition, Freddie said the parties needed to agree on how pooled policies should be interpreted. The GSE also stipulated that MGIC's Wisconsin regulator needed to agree by Dec. 31 that the capital infusion plan is acceptable.
The Office of the Commissioner of Insurance out of Wisconsin was in disagreement with the plan, prompting Freddie to launch a new plan Friday.
Under the new terms, the insurance unit will only have to make a $100 million injection into the Mortgage Guaranty Insurance Corp.
The jurisdictions the mortgage unit can write business in also would include all of the 16 jurisdictions, besides Wisconsin, that have yet to waive capital requirements.
In addition, the period for which the deal is approved for will extend to Dec. 31, 2013, rather than expiring at the end of this year.
To keep Freddie's approval, the capital injection will have to be made by Dec. 1 and the Wisconsin insurance regulator will have to provide written acceptance of the idea that MIC's capital will be available to MGIC to support policyholder claims and obligations.
"I am pleased with the spirit of cooperation all parties have shown in moving forward to reach this point," said Curt Culver, chairman and CEO of MGIC Investment and MGIC. "While there can be no guaranty that the open matters that remain can be successfully resolved, I am hopeful we will continue to make progress."