Genworth Financial (GNW) is writing new higher-priced mortgage insurance while working through losses from the recent economic downturn, turning its income statement slowly around while currently trading at about 30% book, says Nathan Snyder, Co-Portfolio Manager and Managing Director of Snow Capital Management.
“We are patient enough to own this company at 30% of book. With that as a backdrop, I would like to own that company because as earnings turn around, book value turns around dramatically. The other businesses aren’t doing well either. So they turn around all these businesses both from a pricing standpoint and getting rid of dead weight in the portfolio, and they have enormous leverage to the income statement,” Snyder said.
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Some of the mortgage-insurance price increases have come as a result of the government deciding to exit the business, sending the rates up, Synder says. He adds that although the losses from the previous crises were extraordinary, he expects mortgage insurers to work through their book and replace lower-priced with higher-priced business.
“FHA is the largest mortgage insurer in the country, and the government has decided to get out of the mortgage insurance business as fast as they can. As a result, they have probably tripled, if not more, the prices that they charge for that type of insurance. There are three large mortgage insurance companies left in the marketplace. They suffered extraordinary losses associated with the financial crisis. They have been working through that book of business and losing money all the way. However, they continue to write new business at higher prices, and that new business has been through new underwriting standards,” Snyder said.