The slower home buying period of the winter months will have more of an effect on the expected continuing decline in new insurance written than rising interest rates, says Curt Culver, chairman and CEO. Fewer people shop for homes in the winter months, and that reduces loan volume and the need for private mortgage insurance.
The company reports 3Q13 net earnings of $12.1 million, compared with 2Q13 earnings of $12.4 million and a 2Q12 loss of $247 million.
Year-to-date, the company has a net loss of $48 million because of 1Q13’s $73 net loss. Its earnings press release continues to contain the statement that MGIC does not know when it will return to annual profitability.
Home appreciation increases and a drop in unemployment are the leading factors for the improved performance, company officials say.
MGIC has new insurance written of $8.6 billion, up from $7 billion one year prior.
Besides the shift to purchases, MGIC will also benefit from the continuing travails at the Federal Housing Administration. Culver predicts that private mortgage insurers will see their share of low downpayment mortgages which need credit enhancement to increase above the traditional two-thirds share it has versus FHA.
Purchase loans remain affordable for consumers, he continues, while the higher rates will dampen refinancings. This will allow MGIC’s insurance-in-force to grow, because persistency will continue to rise.
Culver says persistency with the newer, higher-quality loans in its book of business should exceed 80% as interest rates continue to rise. So these loans are likely to be on MGIC’s books for a longer period than normal.
As of Sept. 30, persistency is 78.3%, down from 80.2% one year prior.
Refis are 18% of NIW, compared with 30% in 3Q12. He expects a 15% share of refis in the current period.
The government-sponsored enterprises have signed off on MGIC’s settlement with Countrywide over rescission practices and as a result, in the fourth quarter, the loans involved will proceed to claim status.
There are approximately 2,100 loans involved, but the only impact will be seen in MGIC’s monthly operating statistics because it has already reserved for the incurred losses, Culver explains.
MGIC is looking to get all of those claims processed in November, company executives said in the conference call.
Losses incurred in 3Q13 are $180 million, down from $490 million one year prior as there are fewer new notices of delinquency, a lower claim rate and favorable development in severity.
As for how capital standards expected to be announced will affect the mortgage insurance business in general, Culver says it is a positive that the legacy companies have been able to raise funds and the new entrants into the business are also able to attract investors. Both Essent and NMI have filed to conduct initial public offerings.
MGIC is also willing reinsure its legacy book of business with off shore firms if it is able to credit for it for meeting the expected capital requirements, executives add.
Total delinquencies, including bulk loans, are 11.51% on Sept. 30, down from 14.51% one year ago.
Its risk-to-capital ratio is 20-to-1, well below the 25-to-1 required in 16 states. MGIC’s policyholder position is $190 million above the required minimum of $1.2 billion required by its primary regulator in Wisconsin.