This year will be a challenging one for mortgage insurance companies, analysts said, but there were no major surprises from the four that reported fourth-quarter results last week.

All four firms-PMI Group Inc., CMAC Investment Corp., Amerin Corp., and Triad Guaranty Inc.-hit analysts' estimates of earnings per share within 1 cent. Net income growth for the year ranged from 11% for PMI, San Francisco, to 54% for Triad, Winston-Salem, N.C.

However, the recent explosion of mortgage refinancings could dampen demand for mortgage insurance policies, said Gary Gordon, an analyst at PaineWebber Inc., New York.

Most lenders protect themselves against default by demanding that borrowers who take out mortgages for more than 80% of their homes' value buy mortgage insurance. Fannie Mae and Freddie Mac will not purchase these low-down-payment loans unless they are insured.

Unlike in the refinance boom of 1993, borrowers refinancing today are likely to find that their home values have risen, Mr. Gordon said. If so, they may be able to reduce their loan-to-value ratios to under 80%-and cancel their mortgage insurance.

Gerald L. Friedman, chairman and chief executive officer of Amerin, Chicago, said the cancellation issue is a concern that the industry needs to be aware of. But he said it is too soon to say whether refinancing homeowners will be thrifty or liberal with their home equity.

"People can refinance into a lower loan-to-value-ratio loan-but borrowers in the past have been using those dollars to buy things and are now being encouraged to spend," Mr. Friedman said.

Edwin Ciskowski, an analyst with SunTrust Equitable Securities, Nashville, says he isn't especially worried about refinancings dragging down insurers' earnings.

He said insurers like Amerin and Philadelphia-based CMAC would actually benefit from a continued surge in refinancings because they have smaller and newer books of business. They would be able to add new business from refinances and not have to worry about erosion of their book of business.

Mr. Ciskowski said the publicly traded mortgage insurers should be able to report robust earnings growth of between 15% and 25% this year.

But he did voice some concern about contract underwriting, a practice whereby mortgage insurers offer to underwrite loans for their lender- clients, usually at little cost, as a means to gain more primary insurance business.

Mr. Ciskowski said he was surprised to see how much mortgage insurance companies are spending on contract underwriting. He said expenses associated with contract underwriting increased for all mortgage insurers last year.

Mr. Friedman of Amerin mentioned contract underwriting as a way of capturing refinance business. The company, which has typically focused on the retail lending arms of large mortgage originators, wants to step up purchases of loans from brokers and correspondents. It has dedicated more contract underwriters to target these wholesale originators, Mr. Friedman said.

Earnings highlights:

PMI Group reported net income of $41.9 million in the quarter, up 9% from the year-earlier period. Earnings per share rose 15%, to $1.27. Net income for 1997 totaled $175.3 million, up 11%.

CMAC earned $19.8 million in the quarter, up 20%. Earnings per share rose 19%, to 81 cents. Net income for the year was $75 million, up 20%.

Amerin's fourth-quarter earnings jumped 42%, to 11.8 million. Earnings per share rose 35%, to 42 cents. Net income for the year climbed 44%, to $40.8 million.

Triad's net income rose 61%, to $5 million, in the quarter. Earnings per share were 36 cents, up 59%. Net income for 1997 was $17.2 million, up 54%.

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