2 mortgage insurers drop plan to combine

Mortgage insurer MGIC Investment Corp. and rival Radian Group Inc. said Wednesday that they were abandoning plans to combine the companies, citing troubles in the mortgage industry.

MGIC, based in Milwaukee, had agreed in February to pay about $5 billion in stock for Radian, but the deal’s value tumbled along with MGIC’s share price as problems mounted in the mortgage market.

MGIC said in August that it did not believe that it had to complete its purchase of Philadelphia-based Radian because their joint interest in sub-prime mortgage investor Credit-Based Asset Servicing & Securitization could be worthless.

Both companies said it was in each other’s best interest to stay independent. Neither party paid to get out of the agreement, even after both companies’ shareholders had approved the deal that MGIC had said would close in early October.

The deal would have created a new company expected to have total assets of nearly $15 billion and insure some $290 billion of primary mortgages.

The two companies had been equal partners in C-BASS. The $1-billion partnership bet on mortgage credit risk by buying home loans and investments backed by mortgage debt. But mounting delinquencies and defaults pushed banks to make margin calls -- demands for more cash -- on credit lines held by C-BASS.

Analysts have said Radian may need the buyout to stay afloat. Standard & Poor’s threatened to slash Radian’s credit rating if it did not become part of MGIC.

Radian’s shares rose 16 cents to $18.27, while MGIC’s fell 29 cents to $30.05.