Why next year will be just as good as '24 for mortgage insurers

November 11, 2024 1:15 PM

Private mortgage insurers are having a strong year overall so far, and next year should be just as good, the president and CEO of NMI Holdings said.

The six companies should do roughly about $285 billion of new insurance written this year and "we expect a similarly attractive environment in 2025," said Adam Pollitzer on the company's earnings call.

Among the likely fourth quarter headwinds are an uptick in new delinquencies largely resulting from borrowers not being able to make payments in areas affected by Hurricanes Helene and Milton.

Typically, those late borrowers do cure quickly, industry executives from the various companies noted during their third quarter calls.

Here are the results from the six active private mortgage insurance underwriters for the third quarter:

Arch on the difficulties in increasing market share

Executives at Arch Capital Group spoke about the difficulties in building market share on the company's third quarter earnings call.

Private mortgage insurance has become "a homogeneous market" and the risk in growing new insurance written is that "you have to cut prices," said Francois Morin, executive vice president, chief financial officer and treasurer.

"We've built a very resilient, very high quality book through picking different types of loans to ensure different geographies," Morin said. "But for us to move from the, call it, 16%, 17% market share and say we want to be at 18%, 19%, 20%, right now, we just don't see that happening because the market will just react with us, and it will just push prices down."

Arch's mortgage insurance segment, which also includes reinsurance and international lines, reported underwriting income of $269 million, versus $287 million in the second quarter and $282 million in the third quarter of 2023.

NIW was down from the second quarter, $13.5 billion versus $13.8 billion. It was higher than the $11.5 billion for the third quarter of 2023.

On Nov. 7, David Gansberg, who had been running the MI business, was promoted to president at the parent company with primary responsibility for Arch's Insurance Group. At the same time, Maamoun Rajeh was promoted to president and he will oversee the mortgage and reinsurance groups.

Enact reports small impact from Hurricane Beryl

Hurricane Beryl had a modest impact on Enact's third quarter delinquencies, the company said on its earnings call. New delinquencies increased to 13,000 from 10,500, "reflective of ongoing positive credit trends and driven by historical seasonality in the aging of our newer books as they go through their normal loss curves and seasonal patterns," said Dean Mitchell, chief financial officer.

It expects to have a more meaningful effect on its delinquent portfolio from Hurricanes Helene and Milton in the current quarter.

"As a reminder, we have historically seen hurricane-related new delinquencies cure at a very high rate as our policy requires the homes to be inhabitable before we pay a claim," Mitchell noted.

Net income was lower between the second and third quarters, to $181 million from $184 million. But from the prior year it was up from $164 million.

NIW was flat at $14 billion versus both comparative periods.

Essent not concerned about delinquency increases

Essent Group's NIW was also flat with the comparative periods, in the $12.5 billion range.

Net income of $176.2 million declined from the second quarter, when it totaled $203.6 million and it was down from the almost $178 million reported for the third quarter last year.

Meanwhile, the number of loans in default rose to 15,906 as of Sept. 30 from 13,954 on June 30 and 13,319 one year prior.

But Essent management noted that gain in the delinquent loan inventory would not have any effect on the company's financials in the future.

Approximately 70% of the defaults were from policies written in 2021 or earlier, with a mark-to-market of 61%, Mark Casale, chairman, CEO and president said on the earnings call.

"So even if they were to go to claim, the probability of us pushing cash out the door is pretty low," Casale continued. "We should see seasoning, you may see increasing defaults, but the probability of claim, which is when cash leaves the door, again, I think, is probably pretty low."

MGIC has a significant increase in business

Unlike nearly all of its competitors, MGIC Investment reported a significant rise in NIW versus the comparative periods.

It posted $17.2 billion of NIW during the third quarter. In the second quarter it did $13.5 billion while for the third quarter of 2023, NIW totaled $14.6 billion.

Market share has been volatile with the introduction of so-called black box pricing, industry members and observers have noted in the past.

"Last quarter, I alluded to with our broad customer base, which we think is sort of the broadest in the industry, that we're price neutral with the market and the risk-based pricing world, we're going to end up with sort of higher market share overall," CEO Tim Mattke said during the earnings call. "Ultimately, we're focused more on the long term versus quarter-over-quarter market share more on what sort of returns can we get for the capital we deploy."

When asked about pricing, Mattke added MGIC's might have been "a little bit off" earlier this year. But the reality is pricing goes up and down in different spots and MGIC makes adjustments based on different risk factors.

During the third quarter, net income was $200 million, down from $204.2 million three months prior. For the same quarter in 2023, MGIC earned $182.8 million.

NMI should benefit in 2025 from affordability issues

Net income at NMI Holdings, parent of National MI, was $98.8 million for the third quarter. That was an increase of 1% compared with the second quarter's $98.1 million and 11% from the third quarter of 2023 when it earned $84 million.

NIW of $12.2 billion was flat compared with the $12.5 billion done in the prior quarter. But it was up from a year ago, when it did $11.3 billion.

National MI expects that the new business opportunity for the whole industry will be similar in 2025 to this year's, which the company considers to be a strong one.

It will be a market "where the long-term secular drivers of demand and activity that we've talked about as key continue to come through, where resiliency in house prices supports incrementally larger loan sizes and where candidly, with rates moving higher again, affordability constraints drive an increasing number of borrowers to the private MI market for down payment support," Pollitzer said.

Radian sees prospects on the rise for its title business

Radian Group's net income was flat on a quarter-to-quarter basis, at $152 million. For the third quarter of 2023, it earned $157 million.

Like many of its competitors, its NIW was relatively flat; it did $13.5 billion for the quarter ended Sept. 30. This compared with $13.9 billion for both the second quarter and third quarter of 2023.

During the quarter, Radian Mortgage Capital closed its first private-label jumbo mortgage securitization.

While its mortgage insurance business had adjusted pretax operating income of $203.5 million for the third quarter, the all other segment, which also includes Radian's title and real estate services business, lost $4.9 million.

That compared with the prior year adjusted pretax operating income of $219.2 million for MI and a loss of $8.8 million for all other.

Radian's title underwriter had to navigate a difficult cycle the last few years, Rick Thornberry, the company's CEO, said on the earnings call.

"I think the title business is well positioned with a growing customer list and look forward to continuing to see the prospects for that as we go forward in momentum," Thornberry said. "Our real estate services business, which is our [single-family rental, real estate owned] and valuation business, been profitable, a little bit less profitable through the cycle, but continues to be a market leader across its different categories of products and services, and we continue to expect to see a profitable contribution from that business."