MBIA Inc (MBI)

[mlkrborn]

CORRECT: UPDATE: MBIA Seeks To Exclude Coverage Of More Mortgages: CFO

("UPDATE: MBIA Seeks To Exclude Coverage Of More Mortgages: CFO," published at 12 p.m. EST, misstated when MBIA loaned $2 billion to its asset/liability business. A corrected version follows.)


By Lavonne Kuykendall
Of DOW JONES NEWSWIRES


With no end in sight to losses in MBIA Inc.'s (MBI) business of insuring securities backed by mortgages, the company is increasing its efforts to get lenders to make good on loans it says should be excluded from coverage.

MBIA said during an earnings conference call Tuesday morning it is owed more than $1.2 billion on its second-mortgage coverage alone, which could ease some financial stress - if it can collect the money.

Investors weren't impressed, though, and bid down MBIA's share price by 18.8% recently, to $3.90, after MBIA reported a third-quarter loss of $727.8 million, or $3.50 a share, after the close of trading Monday.

"We are not out of the woods at this point," C. Edward Chaplin, MBIA's president and chief financial officer, said during the call. "But at least we have a better appreciation of the total area of the woods that we are in."

Since the end of 2007, MBIA has paid out $4.4 billion on its portfolio of insured second mortgage-backed securities and credit default swap contracts on collateralized debt obligations, or CDOs.

MBIA is also seeing stress in its business of managing investments for customers. In the fourth quarter of 2008, MBIA made a $2 billion loan to its asset/liability management business, which issues debt and investment agreements to capital markets and municipal investors. At the end of September, its asset/liability segment held about $1.4 billion in mortgage-backed securities in its $7.3 billion portfolio.

The company said it would owe more in claims than previously expected on its troubled portfolio of second-lien mortgages and said it had transferred servicing of approximately $3.7 billion of troubled loans to a new servicer in hopes of improving the loans' performance.

In addition, it's redoubling its efforts to examine individual loans for those that don't belong in the securities and is pressing the lenders to replace the loans or reimburse MBIA, Chaplin said.

So far, MBIA has identified around $1.2 billion in second-mortgage loans that it wants lenders to replace and expects its ultimate recovery to be "very much greater," Chaplin said. The company could be in for a fight, as lenders have not readily agreed to make good on the loans. Chaplin estimated it could take two or three years to play out, but that the lenders have the funds to cover the loans MBIA has identified so far.

One analyst wasn't reassured.

"Though the company has sizable statutory capital on an absolute basis, it's still way too early to predict whether it will be sufficient to outlast claims, primarily those that insured residential first and second mortgages in the structured finance division," said Jim Ryan, an analyst with Morningstar Inc. in a Tuesday note.

-By Lavonne Kuykendall, Dow Jones Newswires; [phone]; [e-mail]