Wednesday, January 9, 2008 0 comments ++[ CLICK TO COMMENT ]++

Bloomberg Story on Mortgage Insurers

Thanks to ControlledGreed for the original mention of this story about mortgage insurers. The story talks about Martin Whitman and Al Zucharo (never heard of him; supposedly runs Old Republic) and their investments in mortgage insurers like Radian, MGIC, and PMI.

Bloomberg points out that mortgage insurance underwritten have gone up 79%!!! This is a big increase and is interesting given that the housing market was falling apart during this time. They also point out that the mortgage insurance written in 2007 is likely to be a higher quality than before. This sort of illustrates the thesis for investing in insurers. Just because the underlying market is falling apart doesn't mean that the companies will have lower revenue. The number of contracts might decline but I expect the increased premiums and lower default rates to more than make up.

Note that companies like Ambac and MBIA only have a small exposure to mortgage insurance (if any at all) so this story is more applicable to Radian and others. Nevertheless, I expect insurance premiums to go up (that's why Buffett entered the market) and those that survive should actually see lower default rates on future insurance deals.

(On an unrelated note, Felix Salmon of Conde Naste Portfolio has a rebuttal to Bill Gross' view that there may be $250 billion in losses on derivatives such as CDS. It's a good article and touches on how some numbers being thrown around don't make much sense (starting to like Felix Salmon's, often, off-the-wall thoughts)).


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