Expecting significant improvement in the market, hedge funds led by Maverick Capital and Paulson & Co. are now investing in mortgage insurers. According to recent filings Maverick added 23.6 million shares of MGIC Investment Corp. as the stock nearly doubled in the first quarter. Likewise, Paulson’s hedge fund acquired 17 million of the company’s shares as well as 8 million of Radian Group Inc.
Bose George, an analyst at Keefe Bruyette & Woods said: “The mortgage insurance sector is a very good business right now. You’re getting returns in the high teens on new capital and there are barriers to entry.”
Mortgage insurers are called upon to cover loses when homeowners default and foreclosures are unable to recover their loss. This typically happens when a homeowner makes an initial downpayment of less than 20%.
After losing 29% last year, MGIC increase 86% in the first quarter. Radian nearly tripled last year’s gains, rising 75% as well.
“People are looking for names that are still very exposed to improvements in home prices and improvements in mortgage credit over the next few years” George added. “If you believe in a very strong recovery, the insurers remain the best way.”
In April, MGIC CEO Curt Culver stated: “Our strengthened financial condition puts us in a position to regain market share. Returns on the new business are very strong and should continue to be so given the outstanding credit quality of the business.”