Private Mortgage Insurance Company Results and News: Solid 2nd Quarter

News

“Q: How do you transfer funds even faster than electronic banking? A: By getting married!” That’s my attempt to ease into the news that the IRS increased the marriage
penalty
.” The Internal Revenue
Service (do you ever think about that name?), through AOD 2016-02, is offering
a very large reward for unmarried taxpayers who co-own a home: double the
mortgage interest deduction available to married taxpayer.

What
do, in alphabetical order, Arch, Essent, Genworth, MGIC, National MI, Radian,
and United Guaranty have in common? One guess is that they seem to help sponsor
practically every conference or company event that occurs in residential
lending. Another is that they are trying to grab, assuming a $1.6 trillion
origination market this year, about 10% of that, or $160 billion of residential
business. One could optimistically say $200 billion this year, or, let me grab
my HP-12C, about $25 billion per private mortgage insurance company, $2 billion
a month. Of course the pie isn’t evenly distributed: National MI and Arch have
less than 10% each versus UG at over 20%.

Will
private MI companies be helped by front-end risk sharing with Fannie Mae
Freddie Mac? Will they be helped by merging or being sold – maybe Radian to
Essent, or UG to whoever? Stay tuned! Certainly each one is focused on
competitive advantages, and discussing the pros and cons of “rate card” versus
“black box” pricing policies.

For
example, Genworth introduced its improved Rate Express mobile app. Lenders can use Rate Express to find and compare rates, and
TEXT them, plus send a quote to themselves or a colleague, and save it with the
rest of their loan documentation. As always, lenders should enter their Org ID
and save it to their preferences for the most accurate results. The mobile app
can be downloaded from the App
Store
 orGoogle
Play
.
Or just search “Genworth Mortgage Insurance” in the app store’s search field.

Genworth
has a lot going on overseas, and with its long term care division. Those aside,
here in the States Genworth’s MI biz’s operating income came in at $114 million
in the 2nd quarter, a shade above estimates and
up a hair from $113 million last quarter. The company had lower incurred losses
in the U.S., which is nice. The loss ratios helped, as did the improved
performance in the United States. GNW reported operating EPS of $0.25 versus the
consensus estimate of $0.21. Net EPS of $0.35 per share included gains from the
sale of business and the extinguishment of debt. Diluted TBVPS (ex-AOCI) was
$19.54 with an operating ROATE of 2.1%. And Genworth completed two MI
reinsurance agreements that each add $150M of PMIERS capital.

National
MI
 earned a small profit
during the second quarter of EPS (earnings per share) of $0.03 mostly on
higher-than-expected earned premiums. Management increased the 2016 net income
guidance to $7-$10 million (up from a “possibly” profitable year),
and expects $60 million for 2017. NMI’s report contained the terms of the new
quota share reinsurance transaction which appear to be attractive with an
after-tax cost of capital of 3%. The transaction will become effective in 3Q16,
and provides the capacity to scale to $50 billion of insurance in force (IIF).

MGIC announced that it priced
the public offering and sale of $425 million in aggregate principal amount of
5.750% senior notes due 2023. The notes will bear interest at a rate of 5.750%
per year, payable semi-annually. MGIC intends to use a portion of the net proceeds
from this offering, together with, in certain cases, shares of its common
stock, to purchase approximately $292 million aggregate principal amount of the
Company’s $500 million of outstanding 2% Convertible Senior Notes due 2020. The
Company also intends to use a portion of the net proceeds to purchase shares of
its common stock to offset the shares used as partial consideration in the
purchase of the 2020 Convertible Notes.

MGIC’s
2nd quarter earnings also came out a few
weeks ago. MGIC Investment’s total operating revenue of $262.7 million was up
8.2% year over year on higher premiums earned, investment income and other
income. New insurance written was $12.6 billion in the reported quarter, up
6.8% from $11.8 billion in second-quarter 2015. As of Jun 30, 2016, the
company’s primary insurance in force was $177.5 billion, up 5.2% year on year.
It covered approximately one million mortgages.

Essent reported GAAP and
operating EPS of $0.57 and $0.56, and management continues to express a
positive outlook for post-PMIERs price adjustments on the competitive
landscape. In 2Q16, ESNT rounded out a strong first half of the year with new
insurance written up 12% year to date versus 1H15, insurance in force up 26%
from a year ago and operating ROEs up 300 basis points year over year to 16%.
Furthermore, the company maintained its 12% market
share for the sixth consecutive quarter despite
the choppy competitive market and remains better positioned than its larger
peers to grow share gradually, which should drive above-average top-line growth.

Some
analysts believe that the GSEs’ (Fannie Freddie) mandate to share risk
with private capital “should be a long-term opportunity for ESNT to invest in
credit risk among multiple channels and leverage its solid capital base.”

Flow
NIW (new insurance written) of $8.7 billion was above estimates for the 2nd quarter, and the premium margin was up
to 57.6 bps from 56.8 bps Q/Q. Operating EPS excludes $0.6 million of realized
gains. Operating trends were better than estimates primarily due to a higher
premium margin, higher IIF, and lower losses. The single premium percentage was
down to 18.4% from 24.6% Q/Q. Insurance-In-Force (IIF) increased Q/Q to $72.3
billion from $67.7 billion in 1Q. Risk-sharing risk-in-force increased to $305
million from $189 million in 1Q and $66 million a year ago, and analysts expect
Essent to continue to meaningfully grow risk-sharing IIF.

Compass
Point did a write up on Radian’s
earnings
. “We…increase our 2016 earnings per share estimate
to $1.63 from $1.49 and our 2017 estimate to $1.83 from $1.81. Our Buy rating
is based on valuation that overly discounts the competitive and credit risks
posed by the current operating environment. Our revised estimates reflect
higher new insurance written (NIW), offset in part, by lower persistency due to
the recent uptick in refi activity, which is expected to continue for several
quarters. Management raised its NIW guidance due to an increase in the expected
growth of the origination market, as well as an increase in the concentration
of new home purchases, which are 4x more likely to include mortgage insurance
than refinancings.”

“Fannie
Mae and the MBA expect single family purchase origination volume estimates to
increase 11% in 2016 and 2% in 2017, while our NIW estimates for RDN reflect 4%
and 3% growth in 2016 and 2017, respectively, due to competitive pressure and
the potential for a 4Q16 FHA MIP cut. While earnings did not benefit from a
downward revision to the default-to-claim rate on new default notices this
quarter, a continuation of the positive trends could lead to an incremental
50bp downward revision in the second half of the year, which is not reflected
in our estimates and could provide a $10-$15M positive reserve development,
similar to the one recognized in 1Q16.”

Arch
Mortgage Insurance
, the
mortgage segment of Arch Capital Group and whose earnings are heavily
influenced by Australian results, wrote $6.42 billion of new insurance in the
United States, during the second quarter of 2016. From this amount, 76% was
from banks and other non-credit union mortgage originators. Net income
available to Arch common shareholders for the 2016 second quarter was $205.6
million, or $1.65 per share, compared to $110.3 million, or $0.88 per share,
for the 2015 second quarter. Earnings were impacted by losses for Texas
hailstorms and floods, and Fort McMurray wildfires. This compares to net income
for the 2016 first quarter at $149.3 million and $277.9 million for the 2015
first quarter. Arch MI recorded that gross premiums written by the mortgage
segment in the second quarter were 72.7% higher than in the second quarter of
2015, while net premiums written were 80.7% higher than in the second quarter of
2015.

Last
but not least, United
Guaranty
 also
had a decent 2nd quarter. New quarterly business at UG
rose by nearly half, while the unit’s income increased, its book of business
grew and defaults declined. Part of American International Group Inc. (AIG), UG
reported a 19% rise to $187 million in pre-tax operating income due to the
decline in incurred losses from lower delinquency rates, higher cure rates, and
an increase in premiums earned from the growth in policies in force. The
domestic first-lien new insurance written declined by 15% to $13.0 billion,
mainly due to strong refinancing activity in early 2015.

Turning
to the bond markets, today we’ve had the employment
data, but yesterday we had a little rally after sovereign borrowing costs
around the world declined following the Bank of England’s unexpected decision
to administer an unexpectedly large dollop of monetary easing to the U.K.’s
economy. The price on the 10-year rallied .375, the 5-year improved nearly .250
and MBs prices improved .125-2.50, in line with the 5-year Treasury note.

This morning we’ve had yet
another set of trade figures (the trade deficit widened) but much more
importantly we’ve had the employment data. Housing and jobs drive the economy,
and today we learned about jobs. There are three primary numbers that most pay
attention to: Nonfarm payroll, the actual unemployment rate, and hourly
earnings. Nonfarm Payroll was +255k, higher than the experts forecast, and June
was revised higher. The Unemployment rate for July was unchanged from June at
4.9%. And Hourly Earnings were +.3%. Overall the numbers are decent – it is not
a bad economy.

For numbers we closed Thursday with the 10-year at 1.50% and
after the employment data we’re at 1.54% with agency MBS prices worse .125-.250
depending on coupon.

Jobs and Announcements

In sales management job openings, First Commonwealth Bank, a southwestern Pennsylvania Bank, is expanding its Retail Bank and Mortgage Lending presence into Northeastern Ohio. To support this growth First Commonwealth is seeking a regional producing Sales Manager for the Cleveland, Akron, and Canton markets. The ideal candidate should be highly motivated and a proven sales professional to help lead this expansion, and must possess leadership skills to recruit and assist loan originators in becoming top performers. Qualified candidates should send a cover letter and resume to EVP, Mortgage Banking, Stan Foraker (724-933-3988). First Commonwealth Bank is an EEO/AA employer and is a part of First Commonwealth Financial Corporation.

“Forget what the mortgage industry used to look like, we’re here to offer you a new view. Lakeview Correspondent is looking for a Northern California Business Development Director to join our dynamic sales team. This territory includes Northern California, Washington, Oregon and Utah. As a servicing aggregator with a compelling value proposition for correspondent originators, Lakeview Correspondent offers consistent agency and government mandatory and flow pricing, as well as a suite of non-agency portfolio products. Improve your view and become part of a company that is positioned to compete today and into the future. Send us your resume at Careers@lakeviewloanservicing. com.”

On the IT side a technology Company headquartered in the Western United States is looking for an experienced mortgage technology executive “to head this exciting organization. If you are an entrepreneurial senior level executive that can be responsible for all aspects of a growing an enterprise software business, you need to inquire. Your executive compensation package will include the ability to earn ownership.  The ideal candidate will be a unique blend of executive leadership, sales management, and experience in developing and managing enterprise level mortgage software.” Interested parties please submit your resume in confidence to rchrisman@robchrisman. com and specify the opportunity.

HomeStreet Bank is increasing its presence in California. HomeStreet seeking to hire experienced Loan Originators and Operations personnel, particularly in Newport Beach, Brea, Pasadena, Sherman Oaks, Granada Hills, Temecula, San Diego, Fresno, Bakersfield, Walnut Creek, Pleasanton, Sacramento, Roseville and Chico. Some management positions are available as well. Founded in 1921, HomeStreet is one of the largest community banks based in the Pacific Northwest with locations in CA, WA, OR, ID, AZ, and HI and has successfully experienced 450% growth in production since 2011 with production volume of $7.8 billion in 2015 and $900 million in June 2016. HomeStreet Bank offers a competitive compensation and benefits package which includes comprehensive health coverage and an employer matched 401(k) plan, and is an EO/AA Employer including Vets and Disabled. Use this link to search by location and apply online through HomeStreet’s career website; questions can be directed to Cathy Nelson, PHR VP, Recruiting Manager.

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