We have examined, on a few different occasions, the possibility of a recovery for mortgage bond insurers including MBIA (MBI), MGIC (MTG), and PMI (PMI). At one point, back in July, I recommended MGIC as being among the "best" of what was admittedly a shoddy group with MBIA on its heels. The rest I wasn't so sure of to put it mildly. As it turns out, MBIA and MGIC have been the better performers, in that order, but the sector in general has lagged the market. You didn't get killed by playing either of these, but you did underperform an impressive recovery in the broad market.
This is a little surprising at first blush because it would appear that the sector's fundamentals are improving. However, the simple fact is that the stocks had already priced in simple survival and were already looking ahead to meaningful improvement in earnings and balance sheets to justify more than just a dead cat bounce. Though reports have been encouraging with respect to survival, neither MBIA nor MGIC have shown much indication of sustained growth that would propel the stock prices beyond where they are right now. The fact that there is no sustained recovery in housing in the future to improve originations and that a renewed price decline may increase defaults seems to be what keeps these stocks under wraps.
Perhaps the proper analogy for these stocks can be found in the home builders like Toll Brothers (TOL) and D.R. Horton (DHI) that cratered early on, recovered a little bit, and have now stayed there, forever hampered by the nasty overhang of the housing bubble. I think, in both cases, that a recovery from "death" pricing to "survival" pricing may be all that you get for a while.
Showing posts with label Mortgages. Show all posts
Showing posts with label Mortgages. Show all posts
Saturday, March 26, 2011
Sunday, October 3, 2010
Checking in With the Mortgage Bond Insurers
In the interest of maintaining accountability on calls recommended on this site, here is a brief update on the performance of the mortgage bond insurers since they were thoroughly examined on July 22nd.
Well, I recommended MGIC (MTG) at that time and it has merely been second best, trailing MBIA (MBI) by a fairly wide margin. Clearly, MBIA has been on fire, even with a slight recent pullback. Ambac and Radian have been disasters while PMI has held in there, very closely tracking MGIC, much to my surprise.
Well, I recommended MGIC (MTG) at that time and it has merely been second best, trailing MBIA (MBI) by a fairly wide margin. Clearly, MBIA has been on fire, even with a slight recent pullback. Ambac and Radian have been disasters while PMI has held in there, very closely tracking MGIC, much to my surprise.
Monday, August 9, 2010
Mortgage Bond Insurers Earnings Reports
We've seen a few of them come in and because I was most bullish on MGIC (MTG), I will start with that.
MGIC's 2nd quarter results actually weren't half bad. Hell, they even turned a profit, though they seemed to indicate that they didn't expect this to continue and brief blips like this aren't uncommon in depressed industries as a general rule. That being said, they seemed to have a favorable market response even if they have dropped off a bit since then. MGIC is one of the few that actually seems to be able to provide any clarity about the future, even if that clarity is not overwhelmingly positive.
Radian (RDN), reported on the 3rd and got walloped by the market that day. "Walloped" is a technical term meaning they dropped more than 15%. There was fairly little good to say about these results and even though the stock got marked down severely it still isn't more attractive than it had been. The results were genuinely poor.
MBIA (MBI) and Ambac (ABK) both reported today and the performances of the stocks tell the tale. MBIA is up 7% while Ambac is down 17%. MBIA, like MGIC, turned a profit, albeit a paltry $14 million. Further, they seemed to indicate that there is a gradual trend of improvement. In terms of tone, their report seemed more positive than MGIC's. Ambac, on the other hand, is trash and I choose to ignore it.
Now, to my credit, I said MGIC and MBIA were the best of the sector, though I did give MGIC the tip over MBIA, which may or may not have been a mistake. In any case, here's how the stocks have performed since we mentioned them on July 22nd.
Incidentally, Ambac has performed the best so far, but that will change with tonight's earnings reports. They have generally been a bunch of dogs, particularly Radian and PMI, but I still think that the earnings reports indicate that MGIC and MBI are the winners here and maybe buying both to hedge one's bets might be a decent value play going forward.
MGIC's 2nd quarter results actually weren't half bad. Hell, they even turned a profit, though they seemed to indicate that they didn't expect this to continue and brief blips like this aren't uncommon in depressed industries as a general rule. That being said, they seemed to have a favorable market response even if they have dropped off a bit since then. MGIC is one of the few that actually seems to be able to provide any clarity about the future, even if that clarity is not overwhelmingly positive.
Radian (RDN), reported on the 3rd and got walloped by the market that day. "Walloped" is a technical term meaning they dropped more than 15%. There was fairly little good to say about these results and even though the stock got marked down severely it still isn't more attractive than it had been. The results were genuinely poor.
MBIA (MBI) and Ambac (ABK) both reported today and the performances of the stocks tell the tale. MBIA is up 7% while Ambac is down 17%. MBIA, like MGIC, turned a profit, albeit a paltry $14 million. Further, they seemed to indicate that there is a gradual trend of improvement. In terms of tone, their report seemed more positive than MGIC's. Ambac, on the other hand, is trash and I choose to ignore it.
Now, to my credit, I said MGIC and MBIA were the best of the sector, though I did give MGIC the tip over MBIA, which may or may not have been a mistake. In any case, here's how the stocks have performed since we mentioned them on July 22nd.
Incidentally, Ambac has performed the best so far, but that will change with tonight's earnings reports. They have generally been a bunch of dogs, particularly Radian and PMI, but I still think that the earnings reports indicate that MGIC and MBI are the winners here and maybe buying both to hedge one's bets might be a decent value play going forward.
Thursday, July 22, 2010
Another Look at the Mortgage Bond Insurers
A few months ago, we took a look at MGIC (MTG), PMI (PMI), Radian (RDN), Ambac (ABK) and MBIA (MBI). At the time, I commented that they seemed to be coming back from the dead with the stocks posting very rapid increases in the six weeks prior to that post. Fairly shortly thereafter, they all had a rough go of it and subsequently dropped off a cliff as they, one after the other, posted fairly lousy earnings and the overall market was fairly rotten too.
At the time I commented that I wasn't entirely sold on their recovery as we are still within the wake of the vessel of death that was the mortgage crisis, however I think we can say that at least some of these companies should survive. I'm not too thrilled when I look at any of their balance sheets. They are in fairly weak positions, though debt burdens are not ruinous in any particular case so it is unlikely that even another brief credit shock would force any one of them into receivership in a hurry. Normally, this is not promising ground for starting a discussion on a stock or group of stocks, but when you are talking about companies that 18 months ago traded at fractions of their still low prices today it makes sense to do so.
Let's then turn to their earnings prospects. On the revenues side, it's fairly simple. Mortgage lenders and investors purchase insurance to cover against defaults by borrowers. Historically this was a boring business as default rates were so low that payouts were quite meager. Of course, that changed and these companies hemorrhaged money at unbelievable rates for nearly two and a half years straight. Really, it's actually a fairly simple business at its most fundamental level. There are eccentricities to the contracts I invite a more learned person to chime in on, but the basics are easy to understand.
With that in mind, what is the overall outlook? Home sales, once the plunge following the tax credit is done sorting itself out, really do have to go up. I hate to put it as simply as that, but I think it is fair. Over the next couple years, mortgage originations should increase along with the sales. This year is a little choppy and full of distortions so I don't expect miracles. What I don't know is what has happened to the premiums they are able to collect. Have they reduced them to try to grab a bigger piece of a smaller pie or have they increased them as their perceptions of risk were repriced? I can't find any data on this so I would encourage anyone to take a look at it.
On the expenses side, defaults are slowing and should top out shortly. Already we are seeing the claims paid by almost all of these companies taper off, albeit slowly. Of course, if we have a double-dip, things could get dicey, but then we have other problems. As such, I think on both the revenue and expenditure sides, we have the first true trends toward stability since the second quarter of 2007. Yeah, this mess started that long ago. However, I am speaking broadly of the sector. There is differentiation among the several firms.
As I still am not overly familiar with the companies, I won't try to be cute in what I think of their financial conditions and instead I will keep it simple. The companies that are most rapidly moving toward the break-even line are the best bets. MTG is the one most clearly moving toward profitability with claims dropping rapidly from close to $1 billion a quarter to under $500 million. I would still wait for their next earnings report to see if this trend holds. With this plunge, they are actually within sight of profitability. MBI is a little difficult to divine due to large one time charges, but they seem well on the path as well. RDN confuses me and the outlook appears unclear, even for this sector. PMI is iffy and ABK is trash and both shouldn't be touched, especially ABK for those who are attracted to penny stocks.
If I had to buy one, though I am still not inclined to buy any until I see a truly decent earnings report since the easiest money has already been made in these stocks, I would have to buy MTG. I remember when the announced in about August or September of 2007 that they didn't think they would turn a profit again until 2011 or 2012. I'll give them credit since that was probably one of the most accurate forecasts of this entire crisis and because of it they did the best job of protecting themselves and those efforts are starting to bear fruit. That said, I am still less than enthralled by the entire sector. I like value plays, but this is on the outer limits of my tolerances.
At the time I commented that I wasn't entirely sold on their recovery as we are still within the wake of the vessel of death that was the mortgage crisis, however I think we can say that at least some of these companies should survive. I'm not too thrilled when I look at any of their balance sheets. They are in fairly weak positions, though debt burdens are not ruinous in any particular case so it is unlikely that even another brief credit shock would force any one of them into receivership in a hurry. Normally, this is not promising ground for starting a discussion on a stock or group of stocks, but when you are talking about companies that 18 months ago traded at fractions of their still low prices today it makes sense to do so.
Let's then turn to their earnings prospects. On the revenues side, it's fairly simple. Mortgage lenders and investors purchase insurance to cover against defaults by borrowers. Historically this was a boring business as default rates were so low that payouts were quite meager. Of course, that changed and these companies hemorrhaged money at unbelievable rates for nearly two and a half years straight. Really, it's actually a fairly simple business at its most fundamental level. There are eccentricities to the contracts I invite a more learned person to chime in on, but the basics are easy to understand.
With that in mind, what is the overall outlook? Home sales, once the plunge following the tax credit is done sorting itself out, really do have to go up. I hate to put it as simply as that, but I think it is fair. Over the next couple years, mortgage originations should increase along with the sales. This year is a little choppy and full of distortions so I don't expect miracles. What I don't know is what has happened to the premiums they are able to collect. Have they reduced them to try to grab a bigger piece of a smaller pie or have they increased them as their perceptions of risk were repriced? I can't find any data on this so I would encourage anyone to take a look at it.
On the expenses side, defaults are slowing and should top out shortly. Already we are seeing the claims paid by almost all of these companies taper off, albeit slowly. Of course, if we have a double-dip, things could get dicey, but then we have other problems. As such, I think on both the revenue and expenditure sides, we have the first true trends toward stability since the second quarter of 2007. Yeah, this mess started that long ago. However, I am speaking broadly of the sector. There is differentiation among the several firms.
As I still am not overly familiar with the companies, I won't try to be cute in what I think of their financial conditions and instead I will keep it simple. The companies that are most rapidly moving toward the break-even line are the best bets. MTG is the one most clearly moving toward profitability with claims dropping rapidly from close to $1 billion a quarter to under $500 million. I would still wait for their next earnings report to see if this trend holds. With this plunge, they are actually within sight of profitability. MBI is a little difficult to divine due to large one time charges, but they seem well on the path as well. RDN confuses me and the outlook appears unclear, even for this sector. PMI is iffy and ABK is trash and both shouldn't be touched, especially ABK for those who are attracted to penny stocks.
If I had to buy one, though I am still not inclined to buy any until I see a truly decent earnings report since the easiest money has already been made in these stocks, I would have to buy MTG. I remember when the announced in about August or September of 2007 that they didn't think they would turn a profit again until 2011 or 2012. I'll give them credit since that was probably one of the most accurate forecasts of this entire crisis and because of it they did the best job of protecting themselves and those efforts are starting to bear fruit. That said, I am still less than enthralled by the entire sector. I like value plays, but this is on the outer limits of my tolerances.
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.
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.
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