MGIC December Operating Numbers Reveal Steady Business

MGIC Investment Corp. (MTG) continued its streak of strong operating statistics, seen over several months, in the month of Dec 2014. The trend reflects a decline in the delinquency level and an improvement in new business written.

Primary new insurance written for Dec 2014 was $3.3 billion, up 57.1% year over year and 13.8% sequentially.

Delinquency loans (loans that failed to pay back) at MGIC Investment witnessed consistent improvement. Delinquent inventory for the month under review was 79,901, down 22.7% year over year and 0.3% sequentially.

Established in 1957, MGIC Investment is the nation’s oldest private mortgage insurer, with insurance in force of $159.3 billion.

The company which was devastated by the 2008 financial crisis is crawling back. Its fortunes have been helped by declining delinquencies and improving cure rates on claims from its legacy business. The prospects of the company also look bright on its growing book of high-credit-quality business written since 2009.

We expect MGIC Investment to gain from improving market conditions characterized by larger origination volume following a rebound in the housing market. However, the company might face heightened competition from the Federal Housing Administration, the mortgage premium of which President Obama has proposed to slash shortly.

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. For the first nine months of 2014, new insurance written was up 3.5% to $23.9 billion. Along with top-line growth, total delinquent loans declined 25.5% over the same time frame.

Management at MGIC Investment is encouraged by growing demand for home purchases. Moreover, as the majority of purchases involving mortgage do not have 20% down payment, the company expects to benefit from this opportunity.

After suffering losses for six years due to the subprime crisis, the industry is now on its recovery path. The transformed market structure with characteristics such as better credit quality of loans that are being insured now, wipe out pre-crisis mortgages from the portfolio.

Until 2010, the mortgage insurance industry faced a prolonged dearth of new entrants. A resurgent U.S. mortgage insurance market has, however, attracted new players. In 2010, Essent Guaranty, Inc. (ESNT) entered the mortgage insurance industry and after witnessing rapid growth in its business, filed for an IPO last year.

Another player, Arch Capital Group Ltd. (ACGL) acquired CMG Mortgage Insurance Company. The acquisition has given it the license to provide mortgage insurance nationwide.

MGIC Investment currently carries a Zacks Rank #3 (Hold). Its peer, Radian Group Inc. (RDN) is better ranked with a Zacks Rank #2 (Buy).