Posts from the ‘Mortgage Insurers’ Category

Feb 23

Doing more work on MGIC and Radian Group

Over the last couple of days I lightened up on my position in Radian Group and added to my position in MGIC. While I am nervous that this runs contrary to the claims of analysts (which have been getting on board the Radian train lately) I can’t find a hole in my work and cannot ignore the value I see at MGIC.

A few weeks ago I worked through a “blue sky” estimate for both Radian and MGIC. I was pretty surprised by the results. The following is not intended to be 2013 estimate or really an any-particular-time-period estimate. It is simply a look at what earnings might be once defaults “normalize” and each company’s reserve additions revert back to being those on new delinquencies only.

Jan 26

8 Comments

MGIC: Is Something out of Whack?

MGIC has really taken it on the chin over the last couple of days. While I can’t speak to the cause of the move down on Thursday, the fall on Friday, which was followed by further pressure in after hours trading, was precipitated by a note from Macquarie analyst jasper Burch.

Burch called MGIC’s valuation “out of whack”, cited earnings and book value pressure, and suggested that there was “an outside chance” that the regulators might “pull the plug”.

I found the comments surprising.

First, I don’t think his regulator comment is consistent with MGIC’s disclosure (from the SeekingAlpha transcript).

We regularly provide updates to both the GSEs and the OCI of our expectations regarding our capital position and as a result this quarter’s results including the risk to capital ratio are not a surprise to them. The GSEs and the OCI understand that our forecast calls for the risk to capital ratio of Magic to continue to rise for some time to come. The exact timing of when it will begin to decline is subject to among other things, the level of new notices and cures, the amount of new insurance written to Magic and the outcome of dispute resolutions.

Nov 4

On Barrons on Radian

There was a piece published in Barrons this weekend on Radian Group. Barrons is free this weekend so anyone can access it here. The article. written by Jonathan Laing follows quite closely the arguments written in this SeekingAlpha piece. Honestly, there is so much overlap between the two articles that I would have hoped that the writer of the Barrons piece contacted OliverDavies, who wrote the SeekingAlpha article, before writing his.

In my post, Does Radian Guaranty have a liquidity problem?, I considered most of the arguments made by Barrons and even came up with my own spreadsheet model to see if they were valid I have yet to hear of any major errors in my analysis, and it is an analysis I have went over a number of times since then in order to verify. Thus I remain of the opinion that my analysis is fair and that my conclusion that Radian Guaranty will not run into a liquidity problem absent the drop of another shoe in the housing market.

I have to wonder whether Johnathan Laing ran his own cash flow analysis before publishing his work. Did he create a model that showed Radian Guaranty would run out of cash? I would love to see that model. I am not academic about this argument; if someone can prove me wrong I will sell my stock and move on. I really couldn’t care less whether I am right or not, I only want to make money on the opportunity. Read more

Oct 1

Week 65: Doing the work

Portfolio Performance

The turn in housing

– Michael Burry – Scion Capital

The housing market has turned.

Being that it is a huge, lumbering tanker, it takes a long time to slow down and redirect. The changes happen slowly enough that you can miss them if you are focused on the wrong details (price increases and to a lessor degree sales increases) and not enough on the right one’s (inventory). All that matters is that prices are cheap, rates are low, and inventory has come down to levels that leave many cities firmly entrenched as sellers markets. Once buyers stop seeing themselves in the drivers seat, their attitude changes from one of waiting for a better buy to that of getting in before its too late. The vicious circle is replaced by a virtuous one, and sales and price increases will follow. Nothing lasts forever, and the US housing collapse didn’t either.

Falling inventories had to lead the housing turnaround, and that is what we are seeing now. Nationwide in August housing inventories fell from 8.2 months of supply a year ago to 6.1 last month.