Radian Skeptics Ignore Genworth, MGIC
Somewhat more surprising, however, was that shares of Genworth Financial and MGIC Investment Corp also fell -- by 1.32% and 4.08%, respectively -- despite the fact that the story compared those two bond insurers favorably with Radian. Two separate analyst reports released ahead of Monday's open also made the case for Genworth.
In its story, Barron's noted that in the first three quarters of 2012, MGIC "rejected less than 7% of its incoming claims (by number) despite having capital problems of its own. On the same basis, Radian rejected more than 40%." The article also made a strong case that Genworth "is more conservative in its reserving, despite having a materially better mortgage-insurance portfolio."
BTIG analyst Mark Palmer cited the Barron's report liberally in his own research ahead of Monday's open to make the case for Genworth, which he rates a "buy."
"We continue to believe
Genworth also got an upgrade to "outperform" from "neutral," from Macquarie analyst Sean Dargan ahead of Monday's open.
Dargan made no mention of the Barron's report, but argued the US mortgage Insurance industry "will return to profitability in 2013 for the first time since 2007."
He contends the rebound "will be driven by lower levels of new delinquencies more than improving home values in the short-term, but the improved credit profile of home buyers will help...as older vintages burn off and a larger percentage of the book is comprised of more recent, higher- returning loans."
While private mortgage insurers have taken a severe hit from the 2008 subprime crisis, policymakers appear to determined to see them play a role in mortgage finance going forward, as both Democrats and Republicans say they want to reduce the role of government in the sector. As a result, regulators have been especially lenient on mortgage insurers, alowing them to continue to write new insurance even though they do not meet minimum capital standards.
"We believe those private mortgage insurers (PMIs) that are able to avoid getting swamped by their legacy insurance portfolios should be extremely well positioned to take market share and grow going forward," BTIG's Palmer wrote in his report Monday.
While shares of Genworth and MGIC did not fall nearly as much as those of Radian on Monday, it seems plausible that many of the sellers didn't read the Barron's article carefully--if at all--and were unaware of the analyst reports. If so, that carelessness may provide a small opportunity for investors looking to rise the private mortgage insurer sector to recovery.