A trio of mitigating factors will prevent
An improving employment picture, higher home prices and post-forbearance payment deferrals are the significant loss mitigants, said Ryan Gilbert, an analyst at BTIG who has taken over its coverage of the MI industry. He is positive on the industry, with 2021 earnings per share estimates averaging 4% above the consensus.
An improved albeit still challenged U.S. economy should increase the number of forborne homeowners who will
Furthermore, the COVID-19 vaccine and another
Payment deferral, he said, is "potentially significant" for loss mitigation.
"Given strong home price appreciation since March, the deferral option will likely have a minimal impact on many borrowers," Gilbert said. "In the third quarter, 45% of Freddie Mac's forbearance exits
"The data from the government-sponsored enterprises suggest that borrowers and servicers see the value of the deferral option. We expect these numbers to move higher as more loans reach the end of their
The expected shift in 2021 to a purchase market mainly driven by first-time home buyers is a positive for the MI industry, but in particular Gilbert is bullish on Essent and National MI, the two companies that do not have a legacy, pre-financial crisis book of business. (BTIG covers five of the six active MIs, the exception being Arch.)
Companies made decisions around the amount of
But going into next year, the PMIERs excess situation — for the companies Gilbert tracks — is at a similar level and "we believe each company is well positioned to both grow NIW and cover
Essent and National MI will resume taking market share from the legacy companies next year, Gilbert predicts.
"PMI is a commodity product and the advent of risk-based pricing has further reoriented the playing field around price," he said.
Those newer companies have "access to debt/equity/reinsurance capital and no legacy pre-2009 exposure. However, if loss ratios improve faster than we expect, there is likely more near-term upside potential at Radian and MGIC" for investors because their respective stocks trade below book value, Gilbert said.