Mortgage insurers' delinquent inventories drop as forbearances flatten

All four of the stand-alone mortgage insurance companies reported continued reductions in their delinquent loan inventories in December, reflecting a flattening of the share of conforming loans in forbearance.

For the two newest private mortgage insurers, the improvement in the inventory is taking place faster than expected, Ryan Gilbert, an analyst with BTIG, said in separate reports on National MI and Essent.

The number of government-sponsored enterprise mortgages in forbearance only declined by 1,000 between Dec. 8 and Dec. 29, to 964,000, according to Black Knight. But for the week ended Jan. 5, GSE mortgages in forbearance fell by 32,000 to 932,000.

At National MI, the number of loans in default fell to 12,209 on Dec. 31 from 12,532 one month prior; over the same period, the delinquency rate fell to 3.06% from 3.23%.

"The results support our positive thesis on National MI and the PMI industry overall that improving credit trends should lead to lower loss ratios and higher returns on equity," Gilbert said.

Essent's inventory fell to 31,469 units on Dec. 31 from 31,950 one month earlier, while the delinquency rate dropped to 3.93% from 3.99%. Gilbert had expected a 4% delinquency rate at Essent for December.

"The results underscore our preference for new entrant PMIs over legacy, as we believe the new entrants benefit from both improving credit trends and an outsized growth opportunity via market share gains," Gilbert said in the report on Essent.

At MGIC, 46% of the new delinquency notices received in December were for loans in forbearance, down from 49% in November and 54% in October.

But 62% of its delinquent inventory on Dec. 31 consisted of forborne mortgages, compared with 63% at the end of November and 66% on Oct. 31.

There was a 1,526 unit decline in the inventory for the month, to 57,710 on Dec. 31 from 59,236 one month prior.

While MGIC's default rate remains about 100-200 basis points above that of Essent's and National MI's, the improvement in its delinquent inventory is also running ahead of BTIG's expectations, Gilbert said.

Radian had a larger reduction in its inventory in December, with a drop of 1,639 mortgages to 55,537 from 57,176.

Meanwhile, to help meet its capital needs going forward, National MI announced it entered into a quota share reinsurance agreement to cede risk on 22.5% of its new business written this year to a panel of undisclosed entities.

"The treaty highlights the confidence that reinsurers have in our front-end pricing and credit risk management approach, and furthers our ability to pursue incremental, high-quality new business and support lenders and borrowers in the current market," Adam Pollitzer, the company's executive vice president and chief financial officer, said in the press release. "We are also encouraged by the credit performance of our in-force portfolio and the continued decline in the size of our default population through year-end."

The reinsurance agreement also supports National MI's expansion prospects, BTIG's Gilbert said.

"While NMI Holdings entered 2021 with a robust PMIERs sufficiency ratio (211%), the QSR is a good resource to have in place, reducing PMIERS capital requirements as insurance is written, supporting growth, and both supplementing and reducing NMI's reliance on insurance-linked note issuance."