Why These 3 Insurers Are Tanking Today

The mortgage insurance industry is in the midst of a bloodbath at the moment, with Genworth Financial Inc (NYSE: GNW  ) , Radian Group Inc (NYSE: RDN  ) and MGIC Investment Corp. (NYSE: MTG  ) taking an incredible beating following an announcement yesterday from the Federal Housing Finance Agency. 

The cause of all the distress is a 54-page document outlining the FHFA's proposals regarding just how currently approved mortgage insurers will be expected to measure up in the future – if they plan to continue insuring mortgage loans with down payments of less than 20% backed by Fannie Mae and Freddie Mac, that is.

Capital requirements
At the heart of the matter is the requirement that approved insurers carry more capital, a sore spot for an industry just beginning to recover from a near-death experience during the financial crisis. Though legacy delinquent loan inventory continues to drop off – Radian recently reported approximately 49,000 bad loans at the end of June, compared to the year ago inventory of over 78,000 – the new rules will definitely sting. 

Radian and MGIC have not taken kindly to the new proposals, and have been quick to criticize them. The joint response issued on Thursday notes the backlog of troubled policies that still burden the insurers, and complains about the new requirements that they hold liquid assets of 5.6% of their credit risk exposure. Both companies appear to consider the capital rules excessive. 

In its own response, Radian states that it will be addressing its concerns to the FHFA during the comment period, which runs to September 8, noting that the agency's new proposals "are inconsistent" with its stated goal of making mortgage credit more widely available.

Genworth has responded to the FHFA's announcement with a more moderate tone, noting that it plans compliance with proposed capital rules by June 30, 2015. The insurer estimates that, in addition to the $300 million already set aside, it will need another $450 million to $550 million to comply – which won't be a problem, considering the company's "variety of additional capital sources".

Not set in stone
Although the rules are just preliminary, the concerns of these companies are valid. With the difficulties of the past still weighing upon them, any new burden will not be welcome. While both Radian and Genworth saw their stock prices drop by around 5% within the first two hours of trading on Friday morning, hard-hit MGIC toppled by nearly 13%, likely not helped by an early morning downgrade by Goldman Sachs. 

After the initial shock abates, however, things should begin to look up for these insurers – particularly Genworth, which exhibited the least amount of panic regarding the proposed rules. Probably, the input from the industry will soften the edges of the FHFA's requirements, as well. For the moment, however, the bloodletting continues.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3026040, ~/Articles/ArticleHandler.aspx, 11/23/2014 2:20:38 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement