FBR Capital Markets is recommending investors be "more aggressive" on private mortgage insurers ahead of their second quarter earnings reports.
"Rather than earnings, we are more focused on the pace of new delinquencies, loss mitigation, and the outlook for a more favorable revenue environment. On the first score, we expected new delinquencies to continue to have improved in 2Q10 as the benefits of HAMP modifications carried into the quarter and as the pool of troubled borrowers from the pre-2H08 vintages should be closer to running out," said analysts Steve Stelmach and Amy DeBone.
FBR Capital Markets has cut its predictions for losses at PMI by $0.40 per share to $0.70 and at MGIC by $0.03 per share to $0.66. However, it did increase its projection for losses at Radian by $0.03 per share to $0.81; the analysts said any gain Radian got from the sale of its stake in Sherman Financial would be offset by the impact of credit spread tightening.
"Armed with fresh capital and more regulatory flexibility, we are comfortable that the mortgage insurers have enough capital to weather expected losses. Secondarily, as capital is redeployed, the economics of new business become an increasingly more important component of valuation," the FBR Capital Markets analysts said.
On the negative side, "headline risks" remain as the industry is likely to be plagued by regulatory/legislative concerns. These include the likelihood of Federal Housing Administration legislation, Fannie Mae/Freddie Mac reform and determination of what is a "qualified" mortgage being pushed in 2011.
