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Monday, May 3, 2010

Back from the Dead? Mortgage Bond Insurers

These were among the earliest and most severely injured casualties of the mortgage crisis and frankly I had ignored them for a long time. However, I noticed that in the past year that they have really begun to rally in a huge way. MBIA (MBI) and MGIC (MTG) have been coming back the quickest with Ambac (ABK) and PMI (PMI) lagging somewhat. Ambac is the worst among them as it has shown no real signs of recovery while PMI has had an incredible percentage move, but is still off more in proportion to the high compared to MGIC and MBIA.

How much upside is still left in them? I will confess to not really understanding the businesses well enough to get a good sense of whether or not the analyst estimates for earnings are sensible. Still, MGIC, MBI, and PMI are worth looking at even after their large recoveries. In assessing whether or not their valuations make sense, how their businesses have changed compared to 2006 is absolutely vital to understand. I will confess to not knowing a great deal on how these changes have transpired.

If anyone else has any insights, I would be curious.


  1. For my part, I know that PMI is almost completely delegating retention options to the servicing departments of the loans they insure. MGIC will approve any proposed retention option from the service centers. For all of the loans that are not either going to foreclosure or engaged in partial claim or principal forgiveness this means term extensions to new 30 and 40 year pay schedules. The mortgage insurance falls off the PITI after 80% of the principal is paid off. But with the recapitalizing of interest and escrow, these payments could be coming in for a much longer time than they were originally scheduled for.

  2. Very interesting perspective on it. Incidentally, MBI and MTG have taken serious hits over the past couple days. Depending on how badly they get hit, they might get appealing as a trade, but they are so far away from profitability that I have a hard time justifying buying them. I just don't know what sort of earnings power they have going forward. If they drop another 15-20%, I think they are worth a look.