PRIVATE MORTGAGE INSURANCE: If your down payment is less than 20% of the purchase price of the home, mortgage lenders require that you take out Private Mortgage Insurance (PMI). This insurance protects the lender in the event you default on your mortgage. PMI has fallen out of favor in recent years due to the 80/10/10 (80% first mortgage, 10% second mortgage, 10% down payment), 80/15/5 (80% first mortgage, 15% second mortgage, 5% down payment), and 80/20 (80% first mortgage, 20% second mortgage, 0% down payment).

On the heels of the mortgage credit crisis comes word that the two bigger players in the mortgage industry may merge. However, after further deliberation, they decided against a merger.

MGIC drops bid for rival Radian
The mortgage insurers agree to end the deal and focus on how to survive in the industry.
By Emily Fredrix The Associated Press

Milwaukee – Mortgage insurer MGIC Investment Corp. abandoned its $5 billion bid to buy rival Radian Group Inc. on Wednesday, saying it was in each other’s best interest to concentrate on surviving in the faltering mortgage industry.

Radian had vowed to see the deal through when MGIC announced in August it wanted to back out. But chief executive S.A. Ibrahim said Wednesday that Radian didn’t want to fight and instead needed to weather what he called “an industrywide scramble to survive.”

Investors seemed hopeful for both companies after news of the agreement.

Though Radian’s shares tumbled as much as 9 percent after the market opened Wednesday, they closed up 16 cents at $18.27. MGIC shares fell 29 cents to end at $30.05.

MGIC, based in Milwaukee, had agreed in February to pay about $5 billion in stock for Radian, valuing its shares at $60.78. Shares of MGIC closed the day the deal was announced at $70.09.

As problems mounted in the mortgage market, both companies saw their shares tumble and the deal’s value sink.

MGIC said it did not believe it had to complete its purchase of Philadelphia-based Radian because their joint interest in subprime-mortgage investor C-Bass LLC could be worthless.

The decision to end the deal was mutual, both companies said.

Neither party paid the other to get out of the agreement, according to a news release. The original agreement said there would be no breakup fee if a decision was mutual.

Both companies’ shareholders had already approved the deal, which MGIC had said would close in early October.

But woes felt throughout the mortgage industry made the deal difficult to finish, said Michael Zimmerman, MGIC’s vice president of investor relations.

While this is akin to splitting up, it remains to be seen what this means to the borrower. There aren’t too many PMI companies left and when the two biggest PMI companies are more concerned about surviving, especially when in 2007 PMI is tax deductible, this can’t be a good sign.

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