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PMI Group Shares Popped: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of mortgage insurer PMI Group (NYSE: PMI  ) were hopping today, gaining as much as 10% in intraday trading.

So what: Banking giant Bank of America (NYSE: BAC  ) reached an agreement today to buy back $3 billion worth of loans from Fannie Mae and Freddie Mac. The government-backed finance companies were seeking billions from Bank of America on claims that its Countrywide unit had sold loans that didn't meet Fannie's and Freddie's standards. It seems everyone found something to cheer in the settlement, as Bank of America shares gained 6%, Fannie Mae climbed 9%, and Freddie Mac tacked on 5%. In addition, PMI Group and its fellow mortgage insurers seemed to be rallying on the news. Along with PMI's 10% jump, Radian Group (NYSE: RDN  ) was up 7% and MGIC Investment (NYSE: MTG  ) added 5%.

Now what: Looking specifically at the mortgage insurers, though the news doesn't directly involve them, the group has been in a situation similar  to Fannie's and Freddie's. As home loans have soured, they've been on the hook for insurance payments and, as a result, have been scrutinizing the loans and pushing back on the banks when the paperwork on the original loans turns out to be inaccurate. Bank of America's settlement with Fannie and Freddie is no doubt encouraging to mortgage insurer investors because they hope that similar agreements could be ahead.

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Through different Rising Stars real-money portfolios, The Motley Fool has a long position and a short position in Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.                                                                      

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his Motley Fool CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy is looking forward to a great 2011!

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Related Tickers

10/26/2016 4:00 PM
BAC $16.87 Up +0.15 +0.90%
Bank of America CAPS Rating: ****
MTG $8.45 Down -0.08 -0.94%
MGIC Investment CAPS Rating: ***
PPMIQ.DL $0.03 Down +0.00 +0.00%
PMI Group Inc. CAPS Rating: **
RDN $14.35 Down -0.01 -0.07%
Radian Group CAPS Rating: ***