Tommiegun. I appreciate all your insights, so far on MTG and RDN. Long both names, due in substantially, in part to your expertise and due diligence. You definitely have the will, acumen, focus and persistence to succeed in investing and whatever you put your mind to. As far as the Court stuff goes, that's my area of expertise. Getting to summary judgment in Federal Court in a year's time, given the complexity of the issues and the time to complete discovery, is short. It is no big stretch to assume that the MBIA suit against BAC will take quite a while to work its way through the court before a judicial decision is forthcoming. If there is any dispute concerning the discovery to be provided, that alone could take up to a year's time. The Federal Courts operate as efficiently as they can, but I could easily see a case taking more than a years just to get to summary judgment, and if there are issues of material fact, a trial adds another 6-12 months. Then, if there is an appeal to the Circuit Court, that adds another 6-12 months. Wheels of justice are slow. I have read that BAC may try to settle the MBI suit by the end of the year. BAC would benefit, for its shareholders, to put all the lawsuits behind them. I really believe that the AGO (Assured Guananty) court victory was a huge eye opener and victory for the mortgage insurers who have defended their right to deny claims for grossly negligent underwriting practices by the Countrywide's Mortgages of the world. Totally undermined the bear case that mortgage insurers are underestimating their liabilities. That court decision was a game changer in my mind. Cramer picked up on it. Shorts are just waking up to it.
I haven't been following this particular litigation matter, so I'm unfamiliar with it. I have read about the recent AGO decision, which potentially impacts MBI's litigation to recover $3 billion from Bank of America, and I believe there is a second suit against JPM for $160 million.
From my own experience in the Federal Court, I have seen one District Court wait a full year just to decide a motion for reconsideration. The reason for the delay was the District Court's reluctance to adjudicate the matter, while a nearly identical case was before the Third Circuit. The District Court Judge deemed it prudent to await the 3rd Circuit's decision to ensure consistency in the outcome.
I do not know if the same factor is at play, but it could be.
From Seeking Alpha:
Radian Group (RDN) is likely to move up the date of its capital raise to this evening from after the close Wednesday, Morgan Stanley and Goldman Sachs have informed investors. The move highlights investor demand for the equity and convertible debt of the insurer (trading at 1.4x book). Radian will use the capital to backstop underwriting of new mortgage insurance.
Short interest actually rose between Feb 1 and Feb 15, while stock price rose from $6.75 to $7.25.
Sentiment: Strong Buy
Very sound analysis Tommie. We'll get another peek of what to expect for Q1 in a few days when the NIW for January comes out in about a week. Given the very surprising upside in the macro-housing numbers for January, the trending up for monthly NIW is undeniable.
I am also wondering if the Hurricane Sandy damage will trigger some modest additional mortgage refinancing for the rebuild in the spring.
Question for you (since I could not listen to the CC), has MGIC taken the loss for the $100 million reserve in just completed Q4. I'm hoping yes.
Looking more and more like RDN and MTG both decided to front-load losses in Q4 to brighten the picture going forward in 2013.
Lastly, if MGIC has other sources for additional capital to get through short-term distress (if needed), I would think an equity stake is what will be sought in return.
Maybe this more accurate coverage will get the focus of attention to add to the short squeeze in the last hour. Here is the relevant text:
The current quarter included a one-time charge of $267.5 million related to the settlement of a Freddie Mac dispute. MGIC also boosted its loss reserve estimates by about $100 million during the period to account for probable settlements on rescission disputes with Countrywide and another unnamed lender.
Revenue dropped 17 percent to $371.4 million from $447 million. Still, this beat Wall Street's estimate of $279.6 million.
MGIC's stock climbed 27 cents, or 9.5 percent, to $3.06 in afternoon trading. Over the past year, the shares have traded between 66 cents and $5.15.
Net premiums written fell to $260.7 million from $263.8 million. New insurance written increased to $7 billion from $4.2 billion.
MTG worked off its overbought position. RDN, on the other hand, hasn't taken a rest to consolidate its gains from the beginning of the month. Shorts haven't really had to cover in MTG for some time. And the previous big spike to $3.20, apparently didn't shake out shorts from the short interest data just released today.
Very long RDN, but have meaningful MTG exposure.
Nice. When I heard the $100 million settlement was "probable", my initial thought was why would a Company say such thing as it would create leverage for the other side to try and extract more. But with the robo signing 25% allowance, that is the carrot to make this settlement happen.
I would not get too excited about profits for Q1. Same excitement was postulated for Radian in Q4. My suspicion is that MTG will have to reserve more to get the 45-1 ratio down. Probably (maybe most likely), a condition for allowance to write new insurance and maintaining its waiver status. Also, likely a condition for additional financing from "outside sources".
If the $100 million Countrywide settlement has an ancillary windfall benefit of releasing existing reserves on its related pending claims, this may only be required for a quarter or so. If not, it may take a few good quarters in 2013 to turn the corner, the way Radian just did.
I would note that Susquehanna analyst was on the CC yesterday (read the transcript last night). Will be interesting to see his analysis. He "so" presaged the Radian turn last week. Made a lot of money for a lot of people with that call.
For the longs, if the $100 million Countrywide settlement comes to fruition, and the press release confirms that 32,560 claims are now settled, the stock will move $5-$6 faster than a block of the eye.
MTG will take advantage, within days, I suspect on obtaining additional financing on terms similar to the coup RDN just reaped.
A completely virtuous cycle. And when coupled with the very significant short interest (some of which is covering today), the stock price gains will follow in lockstep with RDN. MTG looks to be RDN a few months behind.
WASHINGTON (MarketWatch) — Federal regulators on Thursday detailed a $9.3 billion settlement with 13 banks over foreclosure abuses stemming from the so-called robo-signing scandal, a deal that government officials say is expected to help more than 3.8 million borrowers.
The settlement with ten of the banks was first announced on Jan. 7 and separate settlements with HSBC (US:HBC) and two other banks came later in the month.
At issue are deficient practices on mortgage servicing and processing, improper fees, wrongful denial of modification, and the robo-signing scandal — the practice of assigning bank employees to rapidly approve numerous foreclosures with only cursory glances at the glut of paperwork to determine if all the documents are in order.
The settlement includes $3.6 billion in cash payments to 3.8 million borrowers, some of whom went through foreclosures.
Banks have agreed to provide an additional $5.7 billion in other assistance to homeowners, such as modifications to their mortgages or cuts to the amount borrowers owe.
The largest banks, as expected, will pay the most.
• Bank of America Corp. (US:BAC) was ordered to provide $1.1 billion into a fund to be used to provide cash payments to troubled borrowers and $1.8 billion in other assistance to homeowners, such as modifications to mortgages or cuts to the amount borrowers owe.
• Wells Fargo & Co. (US:WFC) will pay $766 million into the fund and $1.2 billion in other assistance.
• J.P. Morgan Chase (US:JPM) will pay $753 million into the fund and $1.2 billion in other assistance.
• Citigroup Inc. (US:C) will pay $307 million into the fund and $487 million in other assistance.
• Morgan Stanley (US:MS) will pay $97 million into the fund and $130 million for other assistance.
• Goldman Sachs (US:GS) will pay $135 million into the fund and $195 million for other assistance.
• Aurora Bank will pay $93 million into the fund and $149 million in other assistance.
• PNC Financial (US:PNC) will
According to Mortgage Bankers Association, refi's up 14.8 percent; home sales up 15%. Catalyst was drop in rates. More NIW in the pipeline.
Perhaps when the press release for the February Operating statistics come out Thursday, MGIC management will give emphasis to the new 22 to 1 risk to capital number. Big pop with that.
Ending delinquency inventory dropped from 168,190 to 133,847 YOY.
If the $100 million Countrywide Settlement goes through as the CEO indicated at last Friday's CC, 20% of MTG's delinquency will be wiped out immediately.
Total delinquencies will get closer to 100,000 (RDN's is down to 87,000), but MTG has more risk in force than RDN. But then again, maybe RDN is working its own global settlement with Bank of America. Either way, good news for both mortgage insurers.
Sentiment: Strong Buy