Private mortgage insurers should return to profitability in 2014 as the number of new notices of delinquency continues to decline and the severity of claims is improving, Standard & Poor’s says.
These companies will also benefit from the growing proportion of new business on their books (and the associated profits) combined with a diminishing amount of business written during the housing boom.
But there could still be some adverse effects from that legacy book, S&P warns.
The MIs have had some profitable quarters since the bust started, but typically those profits are because of fair value accounting.
MGIC Investment Corp. has
The increase in the Federal Housing Administration’s mortgage insurance premium has allowed the private MIs to regain market share. But the increased guarantee fees for Fannie Mae and Freddie Mac secondary market executions are blunting this. So as a countermove, the MIs have cut their premiums by 10%, S&P notes.
While the future looks good right now, a recession in 2014 could cause new delinquencies and claims to increase. In turn this could affect the amount of capital the MIs have and cut their ability to write new business, S&P said.
Separately, Zacks Investment Corp. has downgraded Radian Group to strong sell status because the mortgage insurer has delivered negative surprises in its results in two of the last four quarters.
The
Radian’s debt has increased nearly 40% through the first nine months of the year, Zacks notes.
Over the last 60 days, the consensus estimate for Radian’s 2013 results has dropped to $1.60 per share from $1.40 per share.
The consensus estimate as tracked by Zacks for 2014 has been cut 10% to a profit of $0.99 per share during the same time frame.
