Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

American International Group Inc (AIG), Genworth Financial Inc (GNW), Radian Group Inc (RDN): Why Private Mortgage Insurers Are Raking in the Dough

The housing crash that resultant financial crisis ripped the private mortgage insurance market to shreds. Over $20 billion was lost by just four companies during the crisis, but the tides are turning, and private mortgage insurers are coming back into the money. Behind the recent resurgence of the mortgage guaranty market are three huge factors, so let’s take a look at how the players are benefiting now, and how it will continue in the coming months.

American International Group Inc (NYSE:AIG)1. Old news
The major factor holding down the mortgage guaranty business was a lingering inventory of delinquent loans, causing legacy issues for the insurers in the form of payments on such loans. But the plague of delinquencies is subsiding, with American International Group Inc (NYSE:AIG) reporting just a 7.1% primary mortgage delinquencies ratio in its second-quarter earnings report — a 3.2% decline from a year ago. Overall delinquencies fell by 25%, with American International Group Inc (NYSE:AIG)’s rivals reporting similar results:

Company 2013 Q2 PM Delinquency Ratio 2012 Q2 PM Delinquency Ratio Year Over Year Delinquencies Decline
Radian Group Inc (NYSE:RDN) 9.7% 13.3% 21%
MGIC Investment Corp. (NYSE:MTG) 10.2% 12.5% 24%

Source: Companies’ second-quarter earnings reports.

Though Genworth Financial Inc (NYSE:GNW) didn’t report its change in delinquency ratio, overall delinquencies fell 23% in its U.S. segment.

Overall, the insurers have been reporting delinquency rates not seen since 2007 or 2008, signifying that the worst is over and that payments for bad loans will be lower going forward. This is great news for investors since new business is flying in the door, and lower obligations for bad loans won’t be such a huge burden on earnings.

2. Out with the acronyms
Beginning in 2008, the Federal Housing Administration began expanding its position in the mortgage guaranty market after only controlling around 3% before the housing crash. As of 2011, the FHA controlled almost 80% of the market, making it very difficult for private firms to compete because of low pricing and more competitive products after private firms tightened underwriting practices.

Now that the market is on the mend, the FHA has begun increasing its premiums in order to entice private players back into the fold. Likewise, the question over whether or not other governmental sponsored entities like Fannie Mae and Freddie Mac should be dissolved, that may create a greater opening in the market share. Fannie recently took out insurance on a $5 billion pool of loans with the newest player in the PMI field, NMI Holdings.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.