Wednesday, May 8, 2013
Buy Radian Group : Benefit from the re-privatization of the US mortgage insurance market
Since the downturn over 40% of all mortgages issued in the US were through the FHA program. Now that the housing market has stabilized the government seeks to reduce its role. To that end, FHFA has increased incentives NOT to obtain loans from the FHA program by mandating that on June 3, any mortgage obtained through FHA where the purchaser puts less than 20% down at purchase will be required to pay private mortgage for the life of the loan, regardless of LTV (loan to value) of the property. This is a far cry from the previous rule of mandated PMI for 5 years and 80% LTV. Why? The government is trying to revive the private mortgage insurance market. Radian Group is one of the largest private mortgage insurers that will benefit from this government pullback. After suffering huge losses in the financial crisis, there are tailwinds for the company. The company is well reserved, the delinquency rate of the legacy portfolio is rapidly declining, and the company maintained national operations ready to handle the volume of work that will be available. Most importantly, earnings from new mortgages is now outpacing the losses from old mortgages. The author has purchased RDN at will buy RDN at $13/share.
Posted by Lockstep at 4:34 PM