Shares of MGIC Investment Corporation (MTG) gained 1.65% to close at $9.24 on Jul 10, after the company reported robust monthly operating statistics for Jun 2014. The results reflected a decline in delinquency level and an improvement in new business written.
Primary new insurance written for Jun 2014 was $3.2 billion, up 14.3% both on a sequential as well as year-over-year basis.
MGIC Investment witnessed consistent improvement in delinquency levels. Delinquent inventory for Jun 2014 was 85,416, down 27.1% year over year and 1.2% sequentially.
Established in 1957, MGIC Investment is the nation’s oldest private mortgage insurer, with $159.2 billion insurance in force. The company which was devastated in the aftermath of the 2008 financial crisis is chugging back. The company’s fortunes have been aided by declining delinquencies and improving cure rates on claims from its legacy business. Prospects for a brighter future are also being boosted, in turn, by the company’s growing book of high-credit-quality business written since 2009.
We expect MGIC Investment to gain from improving market conditions, especially a rebound in the housing market. In 2013, primary new insurance written at MGIC Investment was worth $29.8 billion, up 24% year over year and double the figure reported in 2011. The increase was attributable to larger origination volume and improved share in the in private mortgage insurance market.
According to Inside Mortgage Finance, till 2010, MGIC Investment was the largest private mortgage insurer (in terms of new insurance written) for more than a decade. In 2013, the company had the third-largest market share (in terms of new insurance written).
Management at MGIC Investment is encouraged by the growing demand for home purchases. Moreover, as the majority of purchases involving mortgage do not have a 20% down payment, the company expects to benefit from this opportunity.
After suffering losses for the past six years due to the subprime crisis, the industry is now on its path to recovery. The transformed market structure with characteristics such as better credit quality of loans that are being insured now, wipe out of the portfolio of pre-crisis mortgages, and the possibility of a decrease in the Federal Housing Administration share of the mortgage insurance market may encourage more new entrants.
For many years until 2010, the mortgage insurance industry had seen sluggish new entries. In 2010, Essent Guaranty, Inc. (ESNT) began writing mortgage insurance; in 2013, National Mortgage Insurance Corporation, began writing mortgage insurance; and in January 2014, Bermuda-based Arch Capital Group Ltd. (ACGL) announced that its U.S.-based subsidiaries – Arch U.S. MI– had completed the purchase of a competitor, CMG Mortgage Insurance Company, and that it had received approval as an eligible mortgage insurer from Fannie Mae and Freddie Mac.
MGIC Investment currently carries a Zacks Rank #3 (Hold).
A better-ranked mortgage insurer is Radian Group Inc. (RDN). The stock sports a Zacks Rank #1 (Strong Buy).