Mortgage insurer Triad Guaranty announced today that talks with private equity group Lightyear Capital have crumbled, forcing the company into run-off.
Triad revealed back in early May that it was in negotiations with Lightyear to start a new mortgage insurance company, but the company noted that “certain hurdles arose that prevented the transaction from being feasible.”
Additionally, the company was informed by Freddie Mac that its appeal to lift its suspension as an approved mortgage insurer with the government-sponsored entity was denied.
These events have forced the company into run-off, a situation where all new insurance policy writing is halted, with revenue only coming from existing policies.
It’s unclear what’s next for the struggling company, but CEO Mark Tonnesen said Triad will continue to work with its financial advisor Goldman Sachs to explore alternatives.
In the mean time, the company will cut roughly 100 jobs in the next several weeks and commence the run-off, which it feels will be successful given its resources and management.
It’s been rough year for private mortgage insurers, especially Triad, which lost $77.5 million in 2007, compared to net income of $65.6 million in 2006.
The company has been hit by rising defaults, much of them in areas where home prices continue to be under pressure, such as California and Florida.
That’s forced the company to tighten underwriting guidelines, cutting loan to value ratios, boosting credit score and loan documentation requirements, and recently halting policies on A-Minus and Alt-A loans.
Shares of Triad plummeted 77 cents, or 37.80%, to $1.27 on the news, well below their 52-week high of $43.08.