While I usually focus on mortgage REITs, which I can model quite accurately, I recently have taken a close look at mortgage insurance. Indeed, I realized I could model their business reasonably well, and it now appears to me that MGIC Investment Corporation (NYSE:MTG) offers a mispriced and attractive exposure to mortgage credit.
My analysis tells me that factoring in the next 10 years of cash flows, at 10% yield, MTG is worth about 2.1x its current market price, even assuming the business does not grow. Basically, relative to the actual risks of defaults barring a mortgage meltdown, mortgage insurance ("MI") fees are large compared to the actual losses one can reasonably expect.
MGIC and the mortgage insurance...
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