MGIC Investment Corp. (MTG:US) and Radian Group Inc. (RDN:US) extended rallies as investors bet the mortgage insurers can take on an expanded role as the U.S. scales back its role in the housing market.
MGIC gained (MTG:US) 27 percent to $3.79 at 4:15 p.m. in New York, extending its five-day advance to 39 percent, the biggest weekly rally since 2009. Radian is up about 15 percent since trading closed on Feb. 22.
Radian raised $689 million this week selling stock and notes, and MGIC said yesterday it may also bolster capital. Additional funds make investors more confident the insurers can take on added housing risk as the Federal Housing Administration works to cut its role in the market, said Doug Harter, an analyst at Credit Suisse Group AG.
“You have less risk of a bankruptcy,” Harter said by phone. “If they’re around, you feel pretty good about the growth prospects, given that the FHA is pulling back.”
MGIC Chief Executive Officer Curt Culver said yesterday that the Milwaukee-based insurer may raise funds to cut its risk-to-capital ratio, which breached regulatory limits. The measure was 44.7 to 1 as of Dec. 31, compared with a maximum of 25 to 1 set by some overseers.
“There is a significant amount of capital interested in our industry,” Chief Financial Officer Michael Lauer said on a conference call with analysts yesterday. “We’ve got new competitors coming in, they have attracted capital. We had the offering this week that was well received.”
MGIC reported a loss (MTG:US) of $927.1 million in 2012, and neither MGIC nor Radian has had a yearly profit since 2006. Costs from backing mortgage investors against losses have drained capital at guarantors, forcing companies including Triad Guaranty Inc. and PMI Group Inc. to stop selling new policies.
Investors may view the mortgage guarantors as a new way of betting on a housing market recovery after other companies tied to real estate rallied, Harter said. The Standard & Poor’s 500 Homebuilding Index (S5HOME) jumped 79 percent in the past 12 months, while MGIC has dropped 15 percent. Radian has more than doubled over the period.
Lawmakers may push the FHA to increase the premium it charges for backing mortgages, Ed Mills, an analyst at FBR Capital Markets, said in a note today after a Senate committee hearing.
“An underlying theme of yesterday’s Senate hearing was the quest for private capital to reenter the mortgage market,” Mills said in the note. “There was support for recent market share gains by private mortgage insurers.”
Private insurers had 32 percent of the market last year, according to data from Inside Mortgage Finance. That compares with 23 percent in 2011 and 77 percent in 2006, before the housing slump
Radian, based in Philadelphia, was the top private seller of mortgage insurance last year, with a 26 percent market share. American International Group Inc. (AIG:US)’s United Guaranty Corp. had 24 percent and MGIC had 20 percent.
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