Mortgage Insurance-in-Force Resumes Double-Digit Growth

Among the beneficiaries of the tighter mortgage market is the mortgage insurance industry, according to a report from analysts at Friedman Billings Ramsey here.

It issued the report following the release of the April activity statistics from the Mortgage Insurance Cos. of America.

There was a total of $20.7 billion of primary insurance written, down 22% from March's $26.6 billion. However, the traditional category increased from $15.9 billion to $17.4 billion. This was the best month since June 2004 for traditional insurance.

Bulk insurance written, which the FBR analysts believe is the direction the industry is moving towards in the future, fell from $10.7 billion in March to $3.3 billion in April.

FBR noted that on a year-over-year basis, insurance-in-force is up by 11%, which it said is the best yearly growth rate in this decade.

"We attribute the higher traditional writings to the benefits of greater credit fears in the secondary mortgage market. With mortgage insurance policies already attached to specific loans, these loans are likely to be relatively more attractive in the secondary market than uninsured loans.

"As long as housing relative data appears negative, we suspect the demand for mortgage insurance will remain fairly robust. We also suspect that tax deductibility is benefiting traditional MI production," said the report written by Steve Stelmach and Paul Miller Jr.

At the end of April, MICA members had $696.46 billion of primary insurance-in-force. One year earlier, there was $623.67 billion. MICA data include all the private mortgage insurers with the exception of the Radian Group, Philadelphia, which left the group in September 2003.

FBR noted that it was no surprise that credit performance is getting worse for the mortgage insurers' book of business.

The MICA report noted the cure/default ratio fell from 92.3% in March to 79.6% in April, with 34,347 new cures and 43,161 new defaults.

"We attribute the decline to the usual seasonality of mortgage-related credits and the cyclical headwinds currently facing the housing industry. We do believe that the current credit environment is likely to weigh on earnings growth for the group, but the MIs are susceptible to investors overreacting on the downside," FBR said.

As of mid-afternoon on May 31, the day the MICA and FBR reports were released, three of the four publicly traded firms whose primary business is mortgage insurance saw their stock prices were down. MGIC was down $0.81, Radian down $1 and PMI down $0.17. Triad was unchanged from the previous day. MGIC and Radian have an agreement to merge.

Snapshot: Mortgage Insurance Outstanding Grows 11%

Insurance at 04/31/07 $696 Billion

Insurance at 04/31/06 $624 Billion

Source: MICA

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