United Guaranty cuts 160 jobs

Jun 24, 2009 (Winston-Salem Journal - McClatchy-Tribune Information Services via COMTEX) -- TGIC | Quote | Chart | News | PowerRating -- United Guaranty Corp. followed yesterday in the footsteps of Winston-Salem rival Triad Guaranty Inc. in conducting a major job cut.

The reduction of 160 jobs primarily affects United Guaranty employees in North Carolina. The company declined to say how many jobs would be eliminated in its hometown of Greensboro, where it has about 500 employees, or how soon most of the cuts would be made. The companies operate as a private mortgage insurer to residential-mortgage lenders, such as banks, credit unions and mortgage brokers.

The job cuts were necessary "to align resources and expenses with current market conditions," United Guaranty said. The company also lost about $2.5 billion last year.

Even though the job cuts represent about 17 percent of United Guaranty's worldwide work force of 950, the move falls significantly short of the drastic step taken by Triad Guaranty just more than a year ago.

Triad cut 100 jobs or 40 percent of its work force, including 65 positions in Winston-Salem, as part of being the first major mortgage-insurer victim of the national housing crisis.

Triad also said in June 2008 that it was going into "runoff" with its business, which means the company's revenue is coming only from existing policies that eventually will expire. Triad expects to remain in business for another six to 11 years.

Eric Martinez, the recently hired chief executive of United Guaranty, said in a statement that the company will continue to underwrite new loans.

"Even so, ongoing and challenging market conditions require this step be taken," he said.

Martinez's hiring is another sign of the changing times at United Guaranty, which is owned by American International Group Inc. He replaced Billy Nutt, who was a 30-year veteran with United Guaranty.

AIG collapsed dramatically last September under the weight of controversial financial products that soured in the past two years. According to the Associated Press, the U.S. Treasury and Federal Reserve have committed more than $182 billion to saving AIG, with the Treasury owning nearly 80 percent of the company.

"We are working with AIG to investigate a range of options to manage in this difficult environment, with a high priority on preserving as many jobs as possible and maintaining the high-level service that customers have always received," Martinez said.

Analysts are mixed about the future of the top seven mortgage insurers.

They are benefiting from the housing crisis. Financial institutions are leaning more on traditional loans that require mortgage insurance as they have tightened lending standards.

But some economists say the industry probably hasn't experienced the worst from delinquent loans and foreclosures, particularly in California, Florida, Georgia, Nevada and Washington. The Mortgage Insurance Companies of America said that defaults on privately insured U.S. mortgages rose 10 percent in April to 81,171 compared with April 2008.

"Mortgage insurance can still be a profitable sector," said James Brender, a credit analyst for Standard & Poor's.

"The question for United Guaranty is whether it makes sense for AIG to support the business and how much leeway does AIG have given that it is mostly owned by the federal government."

Tony Plath, a finance professor at UNC Charlotte, said that the federal government will probably step in and support United Guaranty's ability to expand its mortgage-insurance book.

"That's in the best interest of the government since we need mortgage insurers to have a mortgage market in the first place, and we need a mortgage market to have any hope of stabilizing real-estate values," Plath said.

"Or, United Guaranty is going to have to shrink the book to contain the underwriting risk to which they are exposed." That action, Plath said, could lead to more job cuts.

Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.

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