News for 'TGIC' - (Triad Guaranty taken over by Illinois regulator)
Dec 11, 2012 (Winston-Salem Journal - McClatchy-Tribune Information Services
via COMTEX) -- The first local corporate victim of the financial crisis -- Triad
Guaranty Inc. -- appears set to become its latest casualty.
Of! ficials at the Winston-Salem mortgage-insurance company said Tuesday the
Illinois Department of Insurance plans to take over its operations and those of
its subsidiary, Triad Guaranty Insurance Corp.
Mortgage insurers protect residential-mortgage lenders, such as banks, credit
unions and mortgage brokers, from losses if homeowners default on their loans.
The Illinois department has jurisdiction over the companies because they are
domiciled there, and the department serves as their regulator.
As of Tuesday, it was unclear what next step is for the several thousand Triad
policy holders.
In June 2008 -- six months after the financial crisis began -- Triad said it
discontinued writing new mortgage insurance policies and began conducting "an
orderly transition of its business to runoff." That means the company's revenue
comes from existing policies that eventually expire.
Triad officials said at that time they expected th! e company to exist until at
least 2015 to 2017. However, since the company entered runoff status, 206 of its
250 local jobs have been eliminated.
The takeover "will negatively impact Triad Guaranty Inc.'s ability to fund its
operations in the future," the company said in a statement.
"Triad Guaranty Inc. expects this action will likely lead it to commence winding
up its business and liquidating through a Chapter 11 bankruptcy proceeding or
other liquidation proceedings."
Most companies that liquidate do so through Chapter 7 bankruptcy, but Chapter 11
bankruptcy offers some options for liquidation.
Bob Ogburn, the company's treasurer, said Tuesday the subsidiary will file
shortly a rehabilitation plan with the department. If the department approves
the plan, it will take it before the Circuit Court of Cook County for its
approval, likely by the end of the month.
"Right now, it's business as usual for the subsidiary! ," Ogburn said. "It still
has a good bit of funding left."
The primary aspect of the rehabilitation order is that the director of the
department takes possession and control of Triad's assets and liabilities. That
means Triad "will cease to have any oversight or management authority over its
business and affairs."
Triad's board of directors consented to the department's request. The department
agreed to provide Triad with $734,000 to reimburse the company for recent
expenses. Triad said it does not expect to receive any further reimbursements of
expenses.
Tony Plath, a finance professor at UNC Charlotte, said the department's action
is the equivalent of the unfolding of a bank failure.
"Triad Guaranty is being seized by its principal regulator in preparation for a
liquidation that's going to be determined by the Illinois Department of
Insurance," Plath said.
Triad is not the only local mortgage insurer forced i! nto runoff by the sour
housing market.
Republic Mortgage Insurance Co. went into runoff in August 2011. It has Republic
has about 250 employees in Winston-Salem.
On Dec. 3, its parent company, Old Republic International Corp. of Chicago,
reached an agreement with the N.C. Insurance Department that could allow
Republic to stay in existence for as long as another nine years.
Triad was founded in 1987 and became a publicly traded company in 1993.
As recently as 5 1/2 years ago, Triad was a major, and profitable, beneficiary
of the national housing boom since it provided private-mortgage insurance to
homeowners who couldn't afford a 20 percent down payment.
As lenders began providing more exotic mortgage products, some requiring little
or no down payment, business surged for private mortgage insurers as the
national homeownership rate exceeded 68 percent.
Triad posted several quarters of record profitability durin! g that time. Its
share price hit a record high of $60.48 in December 2004.
However, when the economy soured in 2007 and 2008, waves of job cuts led to an
epidemic of homeowners missing enough mortgage payments to spawn an
unprecedented surge in foreclosures. As of Sept. 30, Triad reported that 26
percent of their clients are 30 or more payments behind.
Triad quickly began struggling to meet its financial obligations to lenders.
Since entering runoff, its share price has traded the past 4 1/2 years in a
range of 10 to 50 cents.
What might have sealed Triad's fate is the decision by more financial
institutions to send more unsalvageable residential mortgages through their
foreclosure pipelines in a castor-oil attempt to reduce their exposure and
losses.
Setting aside provisions for loan losses directly affect banks' financial bottom
lines.
Triad reported Nov. 14 a $33.3 million loss in the third quarter, compared! with
a $31.3 million loss in the second quarter and a $37.5 million loss a year ago.
Its deficit in assets was at $802.8 million on Sept. 30 compared with $771.4
million on June 30.
David Wood, a professor of risk management and insurance at Appalachian State
University, said there is no mortgage insurance state-guaranty fund like there
is with property/casualty insurance.
"It will be up to the provisions of the loan agreement whether homeowners are
required to maintain/purchase new mortgage insurance," Wood said. "That often
depends on the percentage of the loan value to the value of the home, with more
than 80 percent typically requiring mortgage insurance."
rcraver@wsjournal.com
(3360 727-7376
___ (c)2012 Winston-Salem Journal (Winston Salem, N.C.) Visit Winston-Salem
Journal (Winston Salem, N.C.) at www2.journalnow.com Distributed by MCT
Information Services
Richard Craver
Copyright (C) 2012, Winston-Salem Journal, N.C.
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