A check of the earnings call transcript finds neither KBW's Bose George nor JMP's Christine Worley hinting at any displeasure with results. New to business, Essnet is more growth play than improving credit play and the mortgage business has slowed significantly. George did question whether management had a feel for if market share (12% in 2013) was improving of late (company isn't able to say yet). Management also expects continued shrinkage in the origination market this year, with industry NIW to be around $150B-$160B.
Investors sell the news following Essent Group's (ESNT -7%) earnings beat this morning, but BTIG's Mark Palmer reminds the newish company - unencumbered by legacy losses - is a growth play in the mortgage insurance sector rather than a play on improving credit.
Primary insurance in force of $32B as of Dec. 31 is up 135% from a year ago. New insurance written of $4.5B compares to $4B a year ago. For the full year, NIW of $21.2B vs. $11.2B in 2012.
Net premiums earned of $40.3M compares to $16.5M a year ago. The expense ratio of 55.3% compares to 100.2%.
Homebuilders and private mortgage insurers are partying thanks to incoming FHFA chief Mel Watts' weekend move to postpone an increase in fees which would have raised significantly raised mortgage costs for those with good, but not stellar credit and less than 20% to put down.
"This is a victory for the housing finance industry," says FBR's Edward Mills. "We believe that this is the first of a series of decisions by incoming Director Watt to preserve/expand mortgage credit availability ... We view this announcement as positive for housing generally, but specifically for private mortgage insurers, originators, and homebuilders."
Mortgage insurers: Radian (RDN +4.1%), MGIC (MTG +1.1%), Genworth (GNW +1.6%), Old Republic (ORI +0.7%), NMI Holdings (NMIH +1.1%). Essent Group (ESNT -0.6%) is off a hair, but up 29% since its late-October IPO.
Not showing much reaction today, but potentially set up to disappoint if the GSEs do not allow any private oxygen in mortgage finance are Redwood Trust (RWT -0.2%) and PennyMac Financial (PFSI +1.2%).
"We are positive on private mortgage insurers, as we believe their pace of credit improvement and timing of normalized earnings is underestimated by the market," says analyst Eric Beardsley. "The sector also has one of the strongest secular tailwinds among financials as FHA reform drives increased demand for private mortgage insurance. MGIC Investment (MTG +3.9%) is currently our favorite name in the group primarily because it has the most upside to our price target ($10)."
"Radian (RDN +0.8%) is our second favorite stock in our coverage universe with 18% upside to our price target ($17)."
Maybe Bruce Berkowitz has it exactly right with his plan to take the mortgage guarantee business of the GSEs and turn it into a state-regulated mortgage insurer without government backing. Radian (RDN +2.4%) and MGIC Investment (MTG +1.2%) continue to be among the year's strongest performers (GNW too, though it's not a pure MI play).
We "anticipate increased competition in our industry from new and existing mortgage insurance companies," says Radian (RDN -6.2%) CEO S.A. Ibrahim. "Competitors recently reduced their borrower-paid mortgage insurance premiums by 5 basis points, which we promptly matched.”
Showing relative strength on a red day are the mortgage insurers, particularly MGIC Investment (MTG +3.9%) as KBW doesn't find the air too thin after the stock's more than quintupled over the past year, and upgrades to Buy with price target hiked to $10 from $9.
Others: Radian (RDN +1.4%), and (not a pure-MI play) Genworth (GNW +0.9%).
Freshly IPOed Essent Group (ESNT -0.1%) is about 29% above its offering price.
The mortgage insurer backed by Soros and Goldman is up 28.5% to $21.84 in early trades after pricing its IPO at $17 per share, well above the planned range of $13.50-$15.50.
BTIG's Mark Palmer rates the stock a Buy with price target of $28 - 3.5x estimated book value per share of $7.81. "We believe ESNT is very well positioned to benefit from the improving fundamentals of the U.S. housing market, the growing demand for mortgage insurance, and the U.S. government’s ongoing retreat from the mortgage insurance space."