The private mortgage insurance companies will not report profits in the first quarter but there should be continued improvement in credit trends and operating performance, said a report from Keefe, Bruyette & Woods.
As for the title insurance business, analysts Nathaniel Otis and William Clark wrote that they expected order volumes to be down year over year for the first quarter. But the title companies should have a better start from an earnings standpoint in 2011 when compared with 2010. This is primarily the result of continued expense management and improvement in loss ratios.
Otis and Clark lowered their first quarter and full year estimates for the mortgage insurers they follow, which includes Old Republic International Inc., the Chicago-based company that also has title and general insurance subsidiaries.
ORI was cut by $0.03 to a loss of $0.01 per share for the quarter, while MGIC was cut by $0.12 to a loss of $0.22. However for the full year, KBW believes these two companies will be profitable.
PMI and Radian, however, are predicted to have losses for 2011 but should return to profitability in 2012.
The analysts added that the proposed Qualified Residential Mortgage definition would have a small impact on the private mortgage insurers.
The first reason is that Fannie Mae and Freddie Mac are exempt from the risk retention requirements as long as they remain in conservatorship. Otis and Clark believe this conservatorship is going to continue for the near and mid-term, thus keeping the current relationship the mortgage insurers have with them intact for a substantial period of time.
Also, "the risk retention requirements themselves for non-QRM loans appear to have enough flexibility for the originators/securitizers to keep a strong low downpayment market in place, with the option for mortgage insurers to be involved in the process as well."
As for the title insurers, the analysts said for investment purposes, they advocate a neutral stance, with only Fidelity National Financial rated as outperform.
"We would point out, though, that the industry may benefit this year from a much more realistic assessment of the 2011 origination market, since the last several years, market expectations began the year overly bullish," said Otis and Clark.
