MGIC still benefiting from favorable mortgage loan loss trends
Continued favorable loss development trends allowed MGIC Investment Corp. to beat analyst estimates in its second-quarter earnings report.
The $0.49 earnings per share beat B. Riley FBR's projections of $0.38 per share, Keefe Bruyette Woods' estimate of $0.32 per share and the consensus of $0.36 per share.
"The beat, versus our model, came primarily from the loss ratio: -5.4% versus our [projection of] 12%. This included a release of $70 million of loss reserves due to better-than-anticipated delinquencies," said B. Riley FBR analyst Randy Binner in a flash report. The lower the loss ratio, the financially healthier a company is; for 2008, MGIC's loss ratio was 220.4%.
MGIC's delinquent inventory of 36,037 loans as of June 30 was down 12.8% from 41,317 loans on the same day last year.
At the end of the quarter, there were 7,828 loans in the inventory from the areas impacted by major hurricanes in 2017, compared to 12,446 loans as of Dec. 31, 2017 and 5,958 loans as of June 30, 2017.
Almost three-quarters of the new delinquency notices received during the quarter came from loans insured in 2008 and previous years. These books accounted for approximately 19% of the June 30, 2018 primary risk-in-force.
"The favorable employment and housing trends we have been experiencing continued, and contributed to an increase of insurance-in-force, a reduction in new primary delinquent notices, a decline of the primary delinquent inventory, and additional positive primary loss reserve development that materially reduced net losses incurred," MGIC CEO Patrick Sinks said in a press release.
New insurance written totaled $13.2 billion for the quarter, a slight increase from $12.9 billion in the second quarter last year. However, this was below Binner's expectations of NIW of $14.2 billion for the period.
Insurance-in-force increased 1.6% during the quarter to $200.7 billion.
In June, MGIC and the other private mortgage insurers received the latest proposed changes to the Private Mortgage Insurer Eligibility Requirements from Fannie Mae and Freddie Mac. Citing nondisclosure agreements, MGIC did not comment on the changes but repeated its previous positions that its PMIERs excess would be materially lower than it is under the current standard, but the mortgage insurance subsidiary would be able to continue to upstream a $50 million dividend to the parent company.
The earnings release, other than a brief mention, did not discuss the mortgage insurance alternatives being offered by Fannie Mae or Freddie Mac.
The nation's largest title insurance underwriter, Fidelity National Financial, had net earnings of $251 million in the second quarter, up from net earnings from continuing operations of $176 million one year prior.
FNF's EPS of $0.90 beat KBW's $0.81 estimate and the consensus estimate of $0.82.
Direct orders opened totaled 505,000 in the quarter, with 71% of those coming from purchase transactions. This was down from 524,000 in the second quarter of 2017, with 66% coming from purchases.
Commercial orders opened increased to 54,200 from 50,800 and revenue increased to $276 million from $261 million.
"The second quarter was a very strong performance for our title business, as we generated adjusted pretax title earnings of $338 million and a 17.1% adjusted pretax title margin, our best quarterly performance on both metrics in 15 years," said FNF Chairman William P. Foley in a press release. "We are encouraged to see the single-digit growth in orders in both the residential purchase and commercial markets offsetting the double-digit decline in orders in the residential refinance market."
In a status update on the proposed acquisition of Stewart Information Services, Foley said FNF received "the expected second request" from the Federal Trade Commission for additional information and documentation.
"We remain engaged in document collection and review and have been working cooperatively with the FTC to fully respond to the second request. The other significant filings are the Form A filings with the states of Texas and New York, both of which are now subject to review by those states. We continue to believe the Stewart acquisition will create meaningful long-term value for our shareholders," he said.