Paulson to Maverick Bet on Housing With Junk Insurers
By Zachary Tracer - May 20, 2013 8:31 AM ET
Hedge funds led by Paulson & Co. and Maverick Capital are piling into mortgage insurers in a bet that some of the companies worst hit by the U.S. housing crash will be among the biggest winners in the rebound.
Maverick, run by Lee Ainslie, added 23.6 million shares of MGIC Investment Corp. (MTG) in the first quarter as the stock almost doubled, according to regulatory filings. Billionaire John Paulson’s $18 billion hedge-fund firm acquired 17 million shares of MGIC and 8 million of rival Radian Group Inc. (RDN)
Perry Capital, George Soros’s family office, and Blue Ridge Capital LLC also added stakes as some of the world’s largest hedge funds wager that companies seen as recently as last year to be on the verge of default, and whose debt is still junk-rated, will benefit from rising home prices and the government’s retreat from insuring home loans. Operating income before taxes for the industry more than doubled in the first quarter from the prior year, according to Moody’s Investors Service, as loan delinquencies declined to the lowest since 2008.
“The mortgage insurance sector is a very good business right now,” said Bose George, an analyst at Keefe Bruyette & Woods in New York. “You’re getting returns in the high teens on new capital and there are barriers to entry.”
Mortgage insurers cover losses when homeowners default and foreclosures fail to recoup costs. The coverage is typically required when homeowners make a down payment of less than 20 percent. Firms such as Philadelphia-based Radian and MGIC, in Milwaukee, received waivers from regulators to continue selling coverage after the housing bubble burst in 2007 and millions of homeowners defaulted. Losses pushed PMI Group Inc., Triad Guaranty Inc. (TGIC) and Old Republic International Corp. from the market