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KBW lifts MGIC to Outperform, Delinquent Loan Inventory Drops 56 Percent in 3 Years Insurer MGIC , which provides mortgage insurance through its principal subsidiary Mortgage Guaranty Insurance Corp., saw its stock rise 2 percent in morning trading after Keefe, Bruyette & Woods analysts gave the company a vote of confidence in a new report. KBW raised MGIC to “outperform” from market perform on Monday. “We are increasing our price target to $11.50 from $11, the KBW report stated. “The slightly lower 2015 estimates better incorporate the recent changes in the company's reinsurance contract. Our higher longer-term estimates reflect lower losses and a reduction in debt. We expect the mortgage insurers to continue to benefit from an improving home purchase market and strong mortgage credit trends," KBW added. The rise came despite KBW’s own admission that “mortgage insurers have been weak over the past two months.” Still, MGIC stands to benefit from the ongoing expectations that mortgage insurance will be relied upon to pick up some of the risk in mortgage transactions – not to mention the fact that defaults or late payments have decreased substantially. For MGIC, three years appears to have made a great difference. In 2012, MGIC reported $2.2 billion in newly written contracts and 148,885 delinquent loans in its inventory by the end of September, company reports show. Fast-forward to 2015, and in the same month, the insurer increased its new contracts to $3.9 billion, and only 64,642 loans received a ‘delinquent’ classification—a 56 percent drop when compared to 2012. This is partly due to improved underwriting, which is benefiting the risk profiles of insurers. “The other positive in the mortgage market is the very strong underwriting standards on the GSE loans,” the KBW analysts wrote. “We believe that this will keep loss ratios well below normalized levels for the foreseeable future. We continue to expect the mortgage insurers to benefit from the on-going growth in the purchase mortgage market and from the increase in credit availability through the GSEs, which should continue to broaden the private mortgage insurance market.” The analysts noted that MGIC worked hard to restructure its reinsurance contract. MGIC publicly noted in a press release in April that it expected to be in compliance with the private mortgage insurer eligibility requirements (otherwise known as PMIERS) that the Federal Housing Finance Agency had published in the spring of 2015. Those requirements specifically described what type of financial condition an insurer would have to be in to provide insurance to loans acquired by Fannie Mae and Freddie Mac. At the time, it stated qualified insurers would have to have “available assets” on hand that are either equal or greater than the minimum required assets needed.

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