MGIC Sees a 5% Increase in Its 4Q Net Income

MGIC Investment Corp. reported net income of $107.5 million for the fourth quarter, an increase of nearly 5% over the $102.4 million earned in the same period of 2015.

Its new insurance written jumped almost 31% year to year to $12.8 billion, while its insurance-in-force as of Dec. 31, 2016 was $182 billion.

However, since the end of 2016, two events — one expected, one not — have shaken the competitive landscape in the private mortgage insurance field.

The first was Arch Capital Group Ltd. in Hamilton, Bermuda, completing its purchase of United Guaranty Corp. from American International Group. While prior to the merger UG, Radian Guaranty and MGIC were neck-and-neck in the size of their IIF book (based on third-quarter numbers), Arch is now by far the largest in terms of IIF with $226.7 billion.

More recently, the Obama administration announced it was reducing the Federal Housing Administration's mortgage insurance premium by 25 basis points. The worry was the lower premium would lead more low down payment borrowers to choose FHA products over conforming loans with private MI.

However, word is that the Trump administration, which takes office on Friday, will put that action on hold.

"Even with an FHA premium cut, we believe that originators will likely prefer private market (Fannie Mae/Freddie Mac) product, as it has lower legal risk," Edward Mills and Randy Binner, analysts at FBR Capital Markets, said in a research report issued Thursday morning.

What is also likely to affect MGIC's business in 2017 is the expected drop in total origination volume to $1.57 trillion from $1.89 trillion, according to the Mortgage Bankers Association.

"We expect to write slightly less new insurance in 2017 compared to 2016 reflecting the current market conditions and a smaller origination market, however, when combined with an improvement in annual persistency we expect that our insurance-in-force portfolio will continue to grow," said Patrick Sinks, CEO of Milwaukee-based MGIC, in a press release.