Private mortgage insurers are better positioned to weather a flatter or even inverted yield curve than other financials from an investment perspective, a report from FBR Capital Markets said.
The interest rate environment will be increasingly challenging for banks as additional short-term rate hikes by the Federal Open Market Committee
"This will drive a change in deposit bases, which combined with our assumption of stable yields on longer-term earning assets, could limit net interest margin expansion and potentially cause NIM compression longer-term," said the report, written by Randy Binner and Weston Bloomer.
"Fortunately, mortgage insurers offer a non-yield curve sensitive way to play good domestic housing trends."
Residential credit trends are expected to remain positive given growing employment and favorable supply and demand dynamics that
The three biggest threats to the industry remain competition with
While those threats "create a constant wall of worry, we believe the policy backdrop is supportive. Mortgage insurers are not spread-based businesses and do not significantly rely on investment income for earnings. Therefore, they have much lower exposure to a flatter curve compared to most financials," the report said.
Changes in interest rates influence the amount of new insurance written as well as the persistency of current policies, defined as the percentage of the book of business that remains in force one later. However, historically purchase origination volume is not significantly impacted by changes in the 30-year fixed-rate mortgage of less than 100 basis points.
The report cites the Mortgage Bankers Association forecast of
