Shares of MGIC Investment Corporation ( MTG ) gained 1.2% to close at $8.72 on Thursday, May 8, after the company reported a decline in delinquency level and a sequential increase in new business written.
Primary new insurance written for the month of April 2014 was $2.3 billion, down 4.2% year over year but up 15.0% sequentially.
Despite a year-over-year decline in new business written, MGIC Investment witnessed a consistent improvement in delinquency levels. Delinquent inventory for April 2014 was 87,987, down 28% year over year and 4.2% sequentially.
MGIC - a niche player in the mortgage insurance market - is enjoying improving market conditions with a rebound in the housing market. Primary new insurance written at MGIC Investment was $29.8 billion in 2013, up from $24.1 billion in 2012 and $14.2 billion in 2011. The increase was attributable to larger origination volume as well as an increase in the private mortgage insurance industry's market share.
According to Inside Mortgage Finance, till 2010, MGIC Investment was the largest private mortgage insurer (as measured by new insurance written) for more than 10 years. In 2013, MGIC Investment had the third-largest market share (as measured by new insurance written).
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 anticipates to benefit from this market opportunity.
After suffering losses for the past six years due to the subprime crisis, the industry is now recovering gradually. The current market structure presents a good opportunity for stronger players, which have a sturdy capital position and can tolerate regulation. Moreover, due to the exit of some firms during the housing market crisis, supply is limited. Mortgage insurers with a differentiated financial profile can therefore benefit from the current market conditions.
MGIC Investment currently carries a Zacks Rank #3 (Hold).
Some of the companies under the Zacks coverage are well poised to gain from the changing trends in the mortgage industry and Old Republic International Corp. ( ORI ) with a Zacks Rank #1 (Strong Buy) is one of them.
Another new entrant - Arch Capital Group Ltd. ( ACGL ) - a favorable Zacks Rank # 2 (Buy), announced plans to enter the U.S. mortgage insurance market last year by acquiring the assets of bankrupt insurer PMI Group Inc. for $300 million.
Another Zacks Rank # 2 stock, Genworth Financial Inc. ( GNW ), is also a good investment option.
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