Shares of mortgage insurers declined Monday, even as most financial stocks rose, after an analyst said the government's takeover of mortgage giants Fannie Mae and Freddie Mac could make the mortgage insurance industry obsolete.
Late Sunday, the Treasury Department vowed to invest up to $200 billion in the government-sponsored enterprises (GSEs) in an effort to stabilize the disruption in the housing market.
The plan is expected to help lower mortgage rates, and in turn offer some relief to consumers struggling with increasing payments.
Friedman, Billings, Ramsey & Co. analyst Steve Stelmach said he expects little immediate impact on the mortgage insurance industry as a result of the bailout. But over the long term, it's possible that mortgage insurance could become an obsolete form of credit enhancement, he said.
"The U.S. Treasury and the Federal Housing Finance Agency are actively trying to facilitate mortgage market liquidity, and Congress could help with that goal by waiving the need for mortgage insurance and the associated premiums," Stelmach wrote. "That decision is not without risk to the U.S. Treasury, however, as we estimate that the mortgage insurance industry has saved GSEs, and by extension the federal government, roughly $15 billion over the past two-and-a-half years."
Stelmach reiterated his "Market Perform" ratings on Radian Group Inc., MGIC Investment Corp. and PMI Group Inc. Radian Group specifically could see further pressure on its stock price, Stelmach said.
Radian Group fell 60 cents, or 12.5 percent, to close at $4.19.
PMI shed 3 cents to end at $4.28.
MGIC lost 41 cents, or 4.4 percent, to finish at $8.80.
Terms & Conditions
RSS Headlines
Fool UK