1 Huge Problem Holding Back Genworth Financial

Genworth Financial (NYSE: GNW  ) has been on a rollercoaster ride for the past few years as it struggles to regain its footing in a post-crisis world. The company's Q3 report is representative of its uneven performance: While the $34 million in net income is a vast improvement over the year-ago loss of $16 million, it still indicates a downward trend from this year's Q1 income of $47 million -- and a huge letdown from its Q2 results of $76 million.

Mortgage insurance arm is still losing ground
Much of Genworth's trouble stems from its loss-ridden mortgage insurance division, which still bears wounds from the mortgage meltdown. Its U.S. mortgage division lost $38 million in Q3, compared to $25 million last quarter, but a vast improvement over the year-ago figure of $79 million.

Genworth has considered cutting the department loose, but was unable to do so because of stakeholder resistance. Peers have not had an easy time, either, despite an increase in writing new business. MGIC Investment (NYSE: MTG  ) was recently given a break by Freddie Mac, which lowered its capital requirements so that the company could continue to write policies until the end of next year. Even ambitious Radian Group (NYSE: RDN  ) posted a Q2 net loss of $119 million despite stepped-up policy-writing from the year previous.

Streamlining efforts may allow some breathing room
The company has announced its plans to sell two of its wealth management businesses, a move that could bring the insurer approximately $400 million. Genworth sold its tax and accounting financial advising arm this past spring, and management has indicated that these actions are meant to improve the company's capital and financial position. Two reasons that Genworth may find this necessary: downgrades from S&P and possibly Moody's, plus increased capital requirements being levied on the industry by the National Association of Insurance Commissioners, a conglomerate of state regulators.

Will these slimming measures help bolster Genworth's sagging bottom line? For the time being, perhaps. But the insurer's problems go much deeper, having their roots in the housing bust, the fallout from which never seems to go away. A housing revival will help pull Genworth and its ilk out of the dumps, and there is evidence that a rebound is in the works -- home prices increased by 0.9% in August, and September's housing starts shot up 35% year over year -- which should reduce the industry's delinquent loan burden.

Until the housing market returns to health, Genworth will continue to flounder, despite its efforts. However, there's a good chance that its current plan will help it to come back stronger than it would without the streamlining. I just wouldn't count on it happening any time soon.

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Fool contributor Amanda Alix has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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. The Motley Fool has a disclosure policy.


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