Once left for dead in the aftermath of the mortgage meltdown, insurers of home mortgage loans have been feeling their oats lately. Companies like Radian Group Inc. (NYSE:RDN), MGIC Investment Corp. (NYSE:MTG), and Genworth Financial Inc (NYSE:GNW) have seen their stock rise by leaps and bounds over the last three months, buoyed by a stronger housing market and the pulling back of government-sponsored entities from the mortgage-indemnification business.
A rally from just a few months ago
Last summer, things were looking pretty bleak for these insurers. MGIC presented investors with a pitiful second-quarter report, and its risk-to-capital ratio was off the charts at 30:1. Radian and Genworth had issues as well, and Radian’s risk-to-capital ratio was edging dangerously close to the 25:1 level of acceptable risk.
Toward the end of 2012, though, things began to look up. Radian was given a lift when its subsidiary Radian Mortgage Assurance was given the green light by Freddie Mac to write insurance coverage through the end of 2013, even if other sections of the business fell short of risk ratios. Then, the S&P/Case-Schiller index showed great strides in the housing market, giving both MGIC and Radian a boost.
More recently, Genworth has been seeing some tailwinds, too. After dropping the idea of an IPO for its troubled Australian mortgage insurance unit last year, management now envisions this occurring in the latter part of 2013. In the works are plans to sell its wealth management and alternative investment businesses as well as the insurer tries to cut out non-core operations.
As the FHA retreats, insurers will blossom
Analysts are seeing an upside to these companies more recently because of better housing data and the scaling back of the Federal Housing Administration’s presence in the mortgage insurance sector. The agency grew to insure close to one-third of residential mortgages since the financial crisis, but has been steadily increasing fees as it tries to avoid a taxpayer bailout and wean the market away from its involvement in insuring home loans. The agency appears to be trying to back away slowly, hoping that new, private entities will step up to take its place.
Will these companies step up? Genworth’s new CEO notes that with FHA fee increases, the business is trickling toward companies like Genworth. Radian has felt the positive effects as well, noting in its earnings report that it doubled the amount of insurance written in January from one year ago.