Worst 10-year performers: MGIC Investment abandons merger as mortgage losses mount

MTG shares plunged 33% in July 2007, as the credit crunch hit the U.S. equities market with a vengeance. The next month, the stock lost another 22% -- not only did mortgage lender First Magnus Financial file for Chapter 11, but MTG also sued Radian in an attempt to exit the planned merger. Already, the companies had admitted that their $1.03 billion investment in C-BASS, a subprime mortgage joint venture, could be rendered worthless in the face of mounting defaults and margin calls.

In September, the litigation was dropped. MTG and Radian, both smarting from severe stock and loan-portfolio losses, walked away from the merger. CEO Curt Culver warned that there was no bidder for the C-BASS business, and that the whole of the investment would likely be written off. Over the course of 2007, MTG shares shed 64%.

What next? The pain continues at MTG, which Culver recently said will probably not return to profitability until 2009. The company reported a loss of $97.9 million in its recently concluded second quarter, as mortgage delinquencies and foreclosures continue to take their toll. Culver added that delinquencies are expected to peak at some point later this year, or possibly into the first quarter of next year.

However, there's something to be said for low expectations -- the stock actually gained following the earnings report. Analyst Howard Shapiro of Fox-Pitt summed it up thusly: "I guess the way to say it is, it was less bad than the market was anticipating. And in this market, less bad is enough to send your stock price up."

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the weekly video series Option Basics on SchaeffersResearch.com.