FOLEY LARDNER

ALAN STEINMETE WILLIAM ISAAC

PHILI.JP HANRAHAN RONALD L.WALTER

ROBERT CHRISTENSEN JOHN 55I1.TOP4

DAVID CROYSDALE JOHN DAWSON HARRY CARI.SON JR WILLIAM DIXON

JOHN BRLHN MICHAEL GREBE ROBERTS HANNING JR DENNIS NOLAN DWIGHT NYE DAVID LOTT

BENJAMIN OASMEPIII ROSERT SANS TIMOTHY CASGAR THOMAS HURST RICHARD S.GALLAOHER CLARENCE MALICK

ANTMONY MAIO RICHARD A-WEISS KEITH CHRISTIAN5EM FREDERICK I. EELOKANP GERALD NEAL JOHN FIELDS

BENN OPASQUALE JAMES CLARK ROBERT GOLDSTEIN DOUGLAS REED JACK ABORTER ALLAN 14 BROWN GEOFFREY GREIVELCIMOER PAUL PRENTISS

BENJAMIN .J ABRONAMS JOSEPH .J 211140 JR EMORY IRELAND MAPS I. SUMNER GEORGE STRANGE STANLEY JASPAN

DAVID SLOOK

1933 Act/42

1934 Act/3a1 3a4 and

3a5

1940 Act/3a1

.LJLI

On behalf of MGIC Mortgage Corporation MIC/MC

we respectfully request your advice as to whether the staff

of the Cmrnission would recorinend ny enforcement action with

respact to the business activities of IC/MC described below

without registration of such activities under the Securities

Act of 1933 33 Act the Securities Exchange Act of

1934 34 Act and the Investment Company Act of 1940

40 Act

We are advised by MIC/MC as follows

Qrganization of WIC/MC -- General

MGIC/MC was incorporated in March 1972 as wholly

omed subsidiary of MGIC investment Corporation holding

company engaged through its subsidiaries principally in the

business of financial guarantee MGIC/MC will engage in the

business of issuing commitments to buy and buying evidences

of indebtedness secured by first mo.rtgages on residential

properties All mortgages i1l be insured by private

11 iiitv_7

roLcy

LYNOPO LAHONER JR

JOSEPH RAPHIN

EFI$OW SWANSON

STEVEN E.KEANE

THEODORE SOLLIGER

JAMES POOLE

PAUL BARNES

S4AR11114 KLITSNER

JAMES BROGY

JOSEPH BRNCTT RICHARD LIARRINGTON

ODIN PLIRINTUN

ALLEN N-TAYLOR

GEORGE P4 CHESTER

HARROLD KIRCOMAS

EDWIN PWILCY

HERBERT WCDEMANN

OAVIO BCKWITH

LYMAN PRECOURT

WILLIAM J.WILLIS

MARRY L.WALLACE

ROGEIlI B-BRADLEY

JOHN COLLINS

BERNARD RUBALE

EDWIN WALMER

RICHARD MILLER

DAVIC SHUTE

WILLIAM KIERNAMJR

EUGENE OAY JERE D.MCGAEFEY

GILBERT CHURCH

DAVIO -I FLECK

MAURICE MC$WEENEY

TIMOTI.y FRAUTSOHI

LAWRENCE BUDGE

JAVES O.HUBER

ROBERT BONNCR

ROBERT DRUMMONO

ROPER WBER MICHAEL S.NOLAN

735 NORTH WATER STREET

MILWAUKEE 53O2

TELEPHONE 414 273-0800

WASHINGTON OFFICE

615 CONNECTiCUT AVENUE

WASHtNGTON D.C 20006

TELEPHONE 202 223-4771

MEMBER GE DISTRICT

OF COLUMBIA BAR

June 21 1972

Securities and Exchange Commission

500 North Capitol Street N.W

Washington D.C 20549

Gentlemen

Re MGIC Mortgage Corporation

Request for No Action Letter
1933 ActI42

1934 Act/3a1 3a4 and

3a

1940 Act/3al

Securities and Exchange Commission

June 21 1972

Page Two

mortgage insurance company. Itis anticipated that great

majority of mortgages purchased will be insured by Mortgage

Guaranty Insurance Corporation MIC also subsidiary

of bI3IC Investment Corporation

Initially NGIC/MC is restricting itS_activities

to whole mortgage loans on 1-4 family properties which are

also the primary residence of the mortgagor However it

is anticipated that the scope of business may be progressively

expanded to include other classes of privately insured loans

secured by second homes rental properties commercial

properties and mobile homes It is also expected that the

method of purchase may be expanded to include various

percentages of participation in individual loans or in pools

of specified lOans secured by any or all of the above types

of insured loans

By way of summary NGIC/MC will participate in

the secondary market for conventional home mortgages in

pattern not dissimilar to that of Federal National Mortgage

Association

Purchases of Mortgages

MGIC/MC will buy mortgages only pursuant to con

tracts between itself and interested sellers The contracting

system consists of Master Sl1ing/Scrvicing Agreenent

Master Agreement between MGIC/MC and sellers which

incorporates by reference the detailed

provisions of Sellers Guide the Sellers

Guide and Servicers Guide and

is supplemented by one or more Commit

ments which specifythe economic terms

of specific proposed transactions between

the parties
1933 Act/42

1934 Act/3al 3a4 and

3a5

1940 Act/3a1

Securities and Exchange Conunission

June 21 1972

Page Three

copy of the Sellers Guide as applicable tb residential mort

gages is attached hereto as Exhibit copy of the Master

Agreement is included in the Forms Appendix to Exhibit

Eligible sellers must first be approved by MGIC

to process individual mortgage insurance applications

MGIC Approved Financial Institutions and rØceive

Master Policy of mortgage insurance This process is used

to determine the general qualifications experience and

financial responsibility of lenders

to originate sound mortgage loans

to properly process individual

applicatIons for mortgage loan

insurance and

to properly administer service

loans either for its oi account or

for other investors so as to mini

mize defaults on mortgages and

consequent insurance claims

As of December 31 1971 approximately 6800 lenders were

WIC Approved Financial Institutions -- 420Q_ federally or

state chartered savings and loan associations 1700 federally

or state chartered conrnercial banks and 900 mortgage banking

firms

IC/MC has established as additional criteria

that its contractors must be Federal Housing Administration

Approved Nortgagees and must qualify under the Nationwide

Lending Regulation issued for federally chartered savings

and loan associations by the Federal Home Loan Bank Board

These additional qualifications involve minimum capital

requirements and location of offices in relation to the
1933 Act/42

1934 Act/3aI 3a4 and

3a5

1940 Act/3a1

Securities and Exchange Commission

June 21 1972

Page Four

mortgaged properties in addition to busines experience

and satisfactory performance requirements comparable to

those applied by MGIC in its own approval For further

description of an Approved Mortgage and the requirements

for nationwide lending see Exhibits and respectively

After potential seller of mortgagel meets the

eligibility criteria and has signed the Master Agreement he

may make specific proposals to sell mortgages to MGIC/MC

either in writing or by telephone If his terms as to types of

mortgages yield to MGIC/MC and fee are acceptable to MGIC/MC

it will issue its Commitment see Exhibit Sellers Guide

Forms Appendix MGIC/MC Commitment House Mortgages

Commitments may be for purchase of mortgages

already owned by the seller or for future mortgage loans which

the seller expects to make which will be of quality acceptable

to private mortgage insurance corporation If the seller

pays the agreed upon non-refundable fee typically one per

cent on one year stand-by commitments to no fee for mort

gages for immediate delivery and returns the Commitment

within the specified time from the oral agreement he will

have the option of delivering mortgages which meet the

conditions of the contracts at the agreed upon price or yield

until the expiration date speciftin the Commitment There

after seller will continue to have certain responsibilities

specified in the Master Agreement Part Servicers to

represent C1C/MC in servicing the loan for the continuing

compensation rate specified in the Commitment under which the

particular mortgage was sold to MGIC/MC These continuing

responsibilities include collection of amounts due under the

mortgage remittances to the appropriate recipient accounting

supervision of requirements imposed on the mortgagor by terms

of the mortgage loan and administration of insurance claims

resulting from defaults

As of May 31 1972 MGIC/MC had purchased and issued

commitments to purchase $14618780 and $176557000 of mort

gages respectively MGIC/NCs Cumniulative Report of Activity
1933 Act/42

1934 Act/3a1 3a4 and

3a

1940 Act/3a1

Securities and Exchange Commission

June 21 1972

Page Five

for the period April 1972 through Nay 31 1972 is attached

hereto as Exhibit To finance these purchases MGIC/MC is

arranging approximately $150000000 in bank credit $100000000

on term loati basis and $50000000 of open credit lines It

is IC/MCs intention to posture its debt so that eventually

such debt will approximately match the natural cash flow

arising from its portfolio of insured mortgages This will be

accomplished by staggering maturities on both anticipated

private and public debt offerings

Sales of Mortgages

As the demand fr seasoned loans permits MGIC/NC

will sell mortgages to permanent investors As of June 15

1972 no mortgÆgØs had been sold

While the procedures for offering mrtgages for

sale cannot be predicted with certainty until actual sales

opportunities are available it is most likely that they will

closely parallel the pchasing system large percentage of

sales are expected to be on an unsolicited basis The balance

of sales are expected to be generated by telephone solicita

tion

Individual contracts would be made when prospective

purchasers and NGIC/MC agree on terms for sale Sales of

mortgages would be subject to continuation of established

servicing relationships or for explicit alternate arrangements

satisfactory to the purchasing institution. Buyers would

have available to them at the offices of MCIC/NC all data

with respect to mortgages to be purchased that sellers furnished

to NGIC/MC See Exhibit Sellers Guide page 11 In addition

the servicers will make available to buyers for examination the

payment records and other credit history of the mortgagor in

the possession of the servicer Based upon such investigation

buyers would have reasonable period of time generally 90

days to reject any mortgage purchased
1933 Act/42

1934 Act/3a1 3a4 and

3a5

1940 Act/3a1

Securities and Exchange Commission

June 21 1972

Page Six

During the first .years of MGICIMCs operations it

is probable that NGIC/MC will sell from 25% to 50% of mortgages

purchased Sales of mortgages will be made .only in accordance

with the following

sales of mortgages will be made only

in blocks of not less than $100000

although it is anticipated that

representative purchase would be from

$500000 to $1000000

sales will be made only to permanent

investors who are MGIC Approved Financial

Institutions and FHA Approved ortgagees

and have qualified as nationwide lenders

See discussion pages and supra

Thus the class of buyers from MGIC7MC

will be the same as .the e11ers to

MGICIIIC institutions and firms which

are experienced and active in continuing

mortgage lending

It is intended that the Seller/Servicer shall main

tain the servicing responsibilitiea and receive the servicing

compensation for the full term of mortgage loans he sells

maturity or earlier prepayment NGIC/MC has undertaken to

assure the continuing relationship by agreeing in the Master

Agreement to give original sellers the right of first refusal

when MGIC/MC proposes to sell specific mortgage to another

investor and to give him lump sum settlement if its sale

results in loss of the continuing servicing relationship This penalty gives an economic incentive to MCIC/Nc to sell its

own mortgages primarily to investors who will be willing to con

tinue established servicing relationships i.e investors who

are continuously active in mortgage investments in locations out

side their own normal loan origination and servicing areas
1933 Act/42

1934 Act/3a1 3a4 and

3a5

1940 Act/3al

Securities and Exchange Commission

June 21 1972

Page Seven

Applicability of Securities Laws to Business of MGIC/MC

The roDosed activities of MGIC/MC do not consti

tute MGIC/MC broker dealer or an exchange under Sec

tions 3a4 3a5 and 3a1 respectively of the 34 Act

Section 3a4 of the 34 Act provids as follows

The term broker means any person

engaged in the business of effecting trans

actions in securities for the account of others

but does not include bank

The proposed activities of MGIC/MC do not constitute

those of broker The definitional section refers to effect

ing transactions in securities for the account of others Sales

of mortgages will not be for the account of others but for MGIC/MC

as principal Cf Letter of Securities and Exchange Conission to

USF Mortga2e Exchne CCH Fed Sec Rep 78636 October 18

1971

Section 3a5 of the 34 Act provide as follows

The term dealer means ny person engaged

in the business of buying and selling securities

for his own account through broker or otherwise

but does riot includa bank or any prson insofar

as he buys or sells securities for his own account

either individually or in some fiduciary capacity

but not as part of regular business

Assuming that MGIC/NC is dealer within the context

of the 34 Act it may still sell mortgages without registration

as dealer in reliance upon applicable exemptions Rule 15a-1

exempts from Section 15a certain indebtedness secured by real

estate mortgages

Evidences of indebtedness secured by mort

gage deed of trust or other lien upon real estate
1933 Act/42

1934 Act/3al 3a4 and

3a

1940 Act/3al

Securities and Exchange Commission

June 21 1972

Page Eight

or upon leasehold interests therein where the

entire mortgage deed of trust or other lien is

transferred with the entIre evidence of indebted

ness are hereby exempted from the operation of

Section 15a of the Securities Exchange Act of

1934 as amended

MIC/MC is aware that the Commission has indicated that

this exemption may be inapplicable if the motgage is an invest

mnent contract An investment contract broadly defined is

contract whereby person invests his money in common

enterprise and is led to expect profits solely from the efforts

of third party S.E.C Howey Co._328 U.s 293

299 1946 In Release Nos 33-3892 and 34-5633 the Commission

set forth list of services and other attributes which may

result in mortgage constituting an investment contract

Complete investigation and placing service

Servicing collection payments foreclosure etc

Implied or express guarantee against loss at any

time or providing market for the underlying

security

Making advances of funds to protec the security

of the investment

Acceptanceof small uniform or continuous invest

ments

Implied or actual guarantee of specified yield or

return

Continual reinvestment of funds

Payment of interest prior to actual purchase of

the mortgage or trust note

Providing for fractional interests in mortgages

or deeds of trust

10 Circumstances which necessitate complete reliance

upon the seller e.g great distance between

mortgaged property and investor

ii Sellers selection of the mortgage or deed of

trust for the investor
1933 Act/42

1934 Act/3a1 3a4 and

3a

1940 Act/3a1

Securities and Exchange Commission

June 21 1972

Page Mine

As previously indicated NGIC/NC intends initially to

deal only in whole loans and not in participations Thus

MGIC/MC respectfully submits that its proposed activities do

not have attributes and MGIC/MCs mortgages

would have attributes and and may have attribute 10 depend

ing upon the proximity of the property to MGIC/NC and/or its

buyer Thus in the aggregate mortgages acquied and sold by

MGIC/MC are not investment contracts

Lastly Section 3al of the 34 Act provides

as follows

The term exchange means any organi

zation association or group of persons

whether incorporated or unincorporated

which constitutes maintains or provides

market place or facilities for bringing

together purchasers and sellers of securities

or for otherwise performing with respect to

securities the functions commonly performed

by stock exchange as that term is

generally understood and includes the

market place and the market faci1itie

maintained by such exchange

The definition of exchange by its terms excludes

the activities of MGIC/NC The activities of MGIC/MC will

not be that of bringing togethei purchasers and sellers of

mortgages but rather of purchasing mortgages for its portfolio and from time to time making dispositions thereof

IC/MC is not an investment company under the

40 Act

The 40 Act defines an investment company as any

issuer which
1933 Act/42

1934 Act/3al 3a4 and

3a5

1940 Act/3a1

Securities and Exchange Commission

June 21 1972

Page Ten

or holds itself out as being

engaged primarily or proposes to engage

primarily in the business of investing

reinvesting or trading in securities Ja1 40 Act

However Section 3c provides as fofiows

Notwithstanding subsection

none of the following persons is an invest

rnent company within the meaning of this

title

5An personwho is not engaged in

the business of issuing redeemable securities

face-amount certificates of the installment

type or periodic payment plan certificates

and who is primarily engaged in one or more

of the following businesses purchasing

or otherwise acquiring mortgages and other

liens on and interests in real estate

Accordingly MGIC/MC would be exempt from 4OAct registration

since the securities to be acquired and sold are mortgages

The sales of_mortggs by MGIC/MC are exep

from registration under the 33 Act by reason of Section 42

of that Act

As discussed sup as the demand for seasoned

loans warrants IGIC/MC will sell mortgages to permanent

investors

Section of the 33 Act provides generally that

it shall be unlawful to sell security unless Registra

tion Statement is in effect with espect to such security
1933 Act/42

1934 Act/3a1 3a4 and

3a

1940 Act/3a1

Securities and Exchange Commission

June 21 1972

Page Eleven

or unless the transaction is exempt from registration under

Section of the 33 Act The sale of mortgages by NGIC/MC

does not fit precisely within the traditional parameters of

the 33 Act

MGIC/MC is aware that the sales of mortgages are

not considered by the real estate business cornthunity to

be transactions necessitating registration under the 33

Act Indeed banks mortgage bankers savings and loans and

others engage in the origination and sale of mortgages includ

ing insured mortgages on daily basis without registration

The absence of registration may be based upon industry

tradition iiimplicit reliance upon 42 and iiiCorninis

sion inaction which may indicate acquiescence in and ii

In addition the traditional registration statement

as applied to the sale of mortgages to sophisticated mortgage

buyers in large blocks with numerous obligors yields and

originating institutions may neither be commercially feasible

nor responsive to the public policy behind 33 Act registra

tion

As previously discussed sales of mortgages by

MGIC/MC will be made only within the following criteria

buyers will be closed classf institutions who are

engaged in the business of mortgage lending iibuyers will

have available for examination complete data with respect to

mortgages purchased iii buyers will have an opportunity to

reject any mortgage after the examination referred to in ii

and iv sales will be made in blocks of not less than lOOOOO

Because of these criteria NGIC/MC respectfully contends that

its prospective purchasers are persons who do not need the

protection of the Act and thus that such sales may be made in

reliance upon Section 42 Securities and Exchange Comis

sion vs Ralston Purina 346 U.S 119 1952 Securities and

ExchFinge Commission_vs Continental Tobacco ComDanv of South

Carolina _____ Fed 2d 5th Cir 1972
1933 Act/42

1934 Act/3a1 3a4 and

3a

1940 Act/3a1

Securities and Exchange Commission

June 21 1972

Page Twelve

pinionof Counsel forNGIC/MC

Based upon our understanding of the business

activities of IC/MC it is our opinion that

The activities of NGIC/MC do not

constitute those of broker

dealer or an exchange

MGIC/MC is not an investment company

under the Investment Company Act of

1940 and

Sales of mortgages from MGIC/MCs

portfolio within the criteria set

forth ohpage5aiict6supra

are exempt from registration by

reason of Section 42 of the Act

General Statements

MGIC/MC contemplates filing with the Commission

registration statement for public offering of senior

debt securities in the near future MGIC/MC has requested

that its counsel prepare this request for no-action and file

such with the Commission in order that MGIC/MC and the

Commission may promptly consider these points apart from

the registration process Accordingly the Company respect

fully requests conference with the staff of the Commission

at the earliest possible date prior to response to this

letter

In accordance with Release 33-5098 three copies

of this letter are being submitted herewith
1933 Act/42

1934 Act/3a1 3a4 and

3a

1940 Act/3a1

Securities and Exchange Coimnission

June 21 1972

Page Thirteen

MGIC/MC requests that this letter be accorded

confidential treatment for 120 days after response from

the Commission

Very truly yours

FOLEY LARDNER

By ______________

William Willis

Enclosures

Exhibit MGIC Mortgage Corporation Sellers Guide

Conventional I-Tome Mortgages

Exhibit FHA Regulations on Approval of Mortgagees

Exhibit 12 C.F.R Chapter 563.9

Exhibit Cummulative Report of Activity for the Period

April 1972 through Nay 31 1972

Based on the foregoing facts and representations we would no

recommend that the Commission take any action if NGIC Mortgagee

Corporation MGIC/MC does not register under the Investment

Company Act of 1940 if it proceeds in reliance on your opinion

as counsel that the exception to the definition of investment

company in Section 3c5C is available

Section 3c5C requires that the issuer be primarily engaged

in the business of purchasthg or otherwise acquiring mortgages

and other liens on and interests in real estate This position

is based on the assumption that IC/MC will be initially engaged

solely and in any event at all times will be engaged primarily in

dealing in whole loans and not in participations or fractional interests

in individual or pooled mortgages or deeds of trust In our view

company primarily engaged in purchasing participations or fractional

interests in individual or pooled mortgages or deeds of trust would

not be entitled to rely upon the exception in Section 3c5C

Alan Rosenbiat Chief Counsel

Division cf Investment Company Regulation

September 1972 SLCrao

CC Harvey Pitt Division of Market Regulation Room 310

David NcLellan CF Room 593