Shareholders Suit Hits Mortgage Insurer Triad Over Disclosur
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February 2, 2009 Monday 03:26 PM EST
449 words
Shareholders Suit Hits Mortgage Insurer Triad Over Disclosures
Raymond J Lehmann
WINSTON-SALEM, N.C.
A putative securities class action filed in federal district court charges executives at mortgage insurer Triad Guaranty Inc. with failing to disclose to investors the real risks of the company's guaranties of riskier mortgage products, which led the company into run-off last summer as defaults mounted.
San Diego-based film Coughlin Stoia Geller Rudman & Robbins filed the case in U.S. District Court for the Middle District of North Carolina on behalf of Triad shareholders who bought the company's stock between Oct. 26, 2006 and Nov. 10, 2008. Similar suits also were filed in the same jurisdiction by Hartford, Conn.-based Izard Nobel LLP and Baltimore-based Brower Piven.
In their respective suits, the firms charge Triad "concealed from the investing public" that it was not adequately reserved for the risks it would face in connection with insurance of so-called "Alt-A" and pay-option adjustable rate mortgage products. The suits also charge Triad failed to engage in proper underwriting practices in 2006 and 2007, had far greater exposure to losses than it disclosed, lacked effective internal controls to police the underwriting process, and failed to disclose risks associated with ratings downgrades and its ability to write new business.
In a statement, Triad said it "believes the plaintiff's allegations are without merit and intends to vigorously contest the action."
After peaking at $58.45 a share in January 2007, Triad's stock tumbled precipitously as the extent of troubles within the U.S. mortgage market became apparent through the year, ultimately dropping to 70 cents a share on Nov. 11, 2008. Hit hard by a wave of defaults arising out of the mortgage crisis, Triad posted a $77.5 million net loss for 2007 and took $508.9 million of net losses through the first three quarters of 2008.
Last June, Triad (NASDAQ: TGIC) said it would lay off 100 staff members and would voluntarily run off its book of business, having broken off talks with private equity firm Lightyear Capital LLC to form a new $400 million company (BestWire, June 20, 2008). The remaining 150 employees continue to work on payment of legitimate claims and servicing the remaining insurance portfolio during run-off period, which the company expects will continue for roughly seven to 12 years.
In regulatory filings, the company said it expects to incur $8.3 million of charges in connection with its run-off, including $7.1 million in severance and related personnel costs.
According to A.M. Best data, Triad Guaranty Group wrote $339 million of mortgage guaranty insurance in 2007, representing 5.6% market share nationally.
(By R.J. Lehmann, Washington bureau manager: raymond.lehmann@ambest.com)
February 3, 2009
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February 2, 2009 Monday 03:26 PM EST
449 words
Shareholders Suit Hits Mortgage Insurer Triad Over Disclosures
Raymond J Lehmann
WINSTON-SALEM, N.C.
A putative securities class action filed in federal district court charges executives at mortgage insurer Triad Guaranty Inc. with failing to disclose to investors the real risks of the company's guaranties of riskier mortgage products, which led the company into run-off last summer as defaults mounted.
San Diego-based film Coughlin Stoia Geller Rudman & Robbins filed the case in U.S. District Court for the Middle District of North Carolina on behalf of Triad shareholders who bought the company's stock between Oct. 26, 2006 and Nov. 10, 2008. Similar suits also were filed in the same jurisdiction by Hartford, Conn.-based Izard Nobel LLP and Baltimore-based Brower Piven.
In their respective suits, the firms charge Triad "concealed from the investing public" that it was not adequately reserved for the risks it would face in connection with insurance of so-called "Alt-A" and pay-option adjustable rate mortgage products. The suits also charge Triad failed to engage in proper underwriting practices in 2006 and 2007, had far greater exposure to losses than it disclosed, lacked effective internal controls to police the underwriting process, and failed to disclose risks associated with ratings downgrades and its ability to write new business.
In a statement, Triad said it "believes the plaintiff's allegations are without merit and intends to vigorously contest the action."
After peaking at $58.45 a share in January 2007, Triad's stock tumbled precipitously as the extent of troubles within the U.S. mortgage market became apparent through the year, ultimately dropping to 70 cents a share on Nov. 11, 2008. Hit hard by a wave of defaults arising out of the mortgage crisis, Triad posted a $77.5 million net loss for 2007 and took $508.9 million of net losses through the first three quarters of 2008.
Last June, Triad (NASDAQ: TGIC) said it would lay off 100 staff members and would voluntarily run off its book of business, having broken off talks with private equity firm Lightyear Capital LLC to form a new $400 million company (BestWire, June 20, 2008). The remaining 150 employees continue to work on payment of legitimate claims and servicing the remaining insurance portfolio during run-off period, which the company expects will continue for roughly seven to 12 years.
In regulatory filings, the company said it expects to incur $8.3 million of charges in connection with its run-off, including $7.1 million in severance and related personnel costs.
According to A.M. Best data, Triad Guaranty Group wrote $339 million of mortgage guaranty insurance in 2007, representing 5.6% market share nationally.
(By R.J. Lehmann, Washington bureau manager: raymond.lehmann@ambest.com)
February 3, 2009
Copyright © 2009 LexisNexis, a division of Reed Elsevier Inc. All Rights Reserved.
Terms and Conditions Privacy Policy
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