Mortgage insurance stocks have been a rollercoaster ride in recent
days amid speculation that some may be going out of business while
others would be poised to take over entire markets. Good news from bond
insurers led to broad increases yesterday, but bad news beat PMI stocks
back down to reality today. The mortgage meltdown is far from over and
the future of these companies remains uncertain.
MGIC Investment Corporation
(NYSE: MTG) shares hit a 15-year low after dropping more than 30
percent today. The nation’s largest mortgage insurance company
announced that paid losses could reach $2 billion this year as it
struggles to accurately forecast its losses amid the mortgage meltdown.
The company is struggling with not only a dramatic increase in
delinquencies, but also an increase in the cost of each claim as fewer
delinquent homeowners are resuming payment.
Home buyers typically purchase mortgage insurance from companies
like MGIC when they put down less than 20 percent of their home’s
value, which makes most of their customers those with exotic mortgages
(the ones that don’t require huge down payments). MGIC said it had
107,120 delinquent loans by the end of 2007, which is a 16,000 loan
increase from the end of the third quarter. Clearly, there is still
trouble in the housing market that is only likely to continue.
The PMI Group, Inc.
(NYSE: PMI), another major provider of private mortgage insurance, also
saw its shares decline more than 15 percent today after the bad news
from MGIC. Interestingly, the stock soared yesterday after bond
insurers Ambac and MBIA announced that they don’t expect to pay as much
as they expected in claims and that the value of their assets is far
higher than the market initially believed. Unfortunately, this may not
ring so true for mortgage insurers as compared to bond insurers.
In the end, the mortgage markets are still in freefall as
foreclosures continue to rise and delinquencies continue to increase.
Mortgage insurance companies made the mistake of insuring risky loans
with exotic mortgages, and that decision is likely to cost them going
forward. Nobody knows the extent of the damage yet, but it may be wise
to stay away from these companies for now!
Related Companies
Radian Group Inc. (RDN)
Triad Guaranty Inc. (TGIC)
The PMI Group, Inc. (PMI)