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Stock Strategist

Mortgage Insurers on the Rise

The housing market might be falling, but these firms are doing quite well.

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Mention the words "mortgage" and "investment" in the same sentence and you're likely to not only raise eyebrows, but you might also have your sanity questioned. After all, rates have been rising, mortgage production is down, housing is tanking and...well, you know the rest. Generally speaking, anything that depends on the mortgage market makes investors run for the hills these days. But there is a related area that is doing quite well. In fact, you might even say that their prospects are getting better all the time.

Mortgage insurers, the companies that provide lenders and their secondary market investors with a hefty degree of comfort on low-down-payment loans, are coming out of trying times. Contrary to the cycle that generated the greatest housing and mortgage boom we have ever seen, mortgage insurers such as  MGIC Investments (MTG),  PMI Group (PMI),  Radian Group (RDN), and  Triad Guaranty (TGIC) actually experienced some tricky times over the past few years. When mortgage originations exploded by 33% in 2003, primary insurance in-force, the mainstay of the mortgage insurance industry, decreased by 7.4% while the number of new applications remained flat. Translated into terms we can all understand, refinances of mortgages with mortgage insurance were not replaced as often with new mortgage insurance.

Jim Ryan does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.