There have been more crappy than sensible posts here. So i thought i will share some due diligence that i have done for the company.
The first thing i should clarify to folks here is that there is a difference between risk in force and insurance in force in the MI business. Risk in force is the maximum payout that a mortgage insurer is expected to make. In MI, this is usually 25% of the insurance in force. I think for MGIC inurance in force is about 190 odd billion while risk in for is only 40 odd billion ... close to 50 than 40.
The second thing is the paid losses figure of 1.2 to 1.5 billion for next year that Curt Culver had quoted in the Q3 conference call included in housing decline of 10% from sept 07 to dec 08 which means a fall of about 15% from the 2006 peak values. We are well within this range and the general consensus among analysts and economists seems to be that prices will drop by about 10 to 15%. If any of you listened to the latest presentation by Culver, you would see that he is reiterating the 1.2 to 1.5 billion paid losses range with an inclination towards the higher end of the spectrum. This was sometime in november end.
Another factor I want to reiterate is paid losses is not net losses. For an insurance company, paid losses is analogous to the cost of revenue for a manufacturing company. MGIC makes about 1.5 billion in revenues. Plus if I am not mistaken, they have another 1.5 billion in loan-loss reserves. So, in the worst case, I expect them to break even in 2008 or may be make a tolerable loss.
Even if we see a really dirty and bloody year, they have a strong capital backing in securities ... mostly bonds. Sometimes the market is ridiculous ... these bonds themselves have a per share value of about 40$ and the share is trading at only 20$. There is no way that I can see the book value dropping to below 30$ even after humongous losses.
Another factor which most of you are ignoring is that the ongoing housing crisis has thrown piggy back loans out of the market. This has improved MI penetration dramatically. There is tremendous upside to this chaos for mortgage insurers and it is already showing in the increase in the number of applications for MI.
How is your due diligence doing for you? Tell us again about all of your research and the definitions of "risk in force" etc.
Please go ask your professor or your TV experts what you should do now.
MTG is going to lost at least $3.85 per share and using up most of their loan lost reserve money in 2008. Should problem continues in 2009, MTG will have a huge problem. House is usually not going to recover for years.
Very good. Finally someone else is seeing through all the deer in the headlights stuff. Piggyback loans were crushing the MI's and their stock prices in the same stroke. The hits they are going to take, are so much less dramatic then people are expecting them to be, and anyone not meeting the risk criteria now, has to get the insurance.
I dont know much about this company per se but have been accumulating over the last few weeks, and love a day like today.
"Sometimes the market is ridiculous ... these bonds themselves have a per share value of about 40$ and the share is trading at only 20$. "
Have you seen their portfolio or are you going based on their stated values? How many CDO, CDS or SIV securities do they own? What kind of haircuts will they be taking on these securities, or do you believe they are the only major insurance co, bank or financial co that didnt buy these?
dude (or dudette)... you gotta be kidding me ... CDOs for a mortgage insurer's portfolio ... duh! Do you even know how CDOs work or what it stands for in the first place ... a MI buying CDOs is like you using paying for a fishnet to protect yourself from the rain ... their IQ has to be negative to do that ...
Also I forgot to add in my previous post that in an average year these guys make about half a billion dollar in net profits ... and the subprime crisis should maim some of their competitors at the very least ... the one with high risk to capital ratios ... thereby strengthening their business ...
someone rightly has discussed that a lot of the new business is due to re-evaluation of risk ... which may not be the best way to get business ... but i see more upside than downside to this increase in business ...