NEW YORK - UBS Warburg on Friday upgraded the entire mortgage insurance sector, pointing to relatively low risk to borrower defaults and undervalued stocks prices.
It upgraded MGIC Investment Corp., Radian Group, and PMI Group from "hold" to "buy" and Triad Guaranty to "strong buy."
Gary Gordon, an analyst with UBS Warburg, acknowledged that borrower troubles could get worse, but he observed that high defaults are usually a result of unaffordable home prices and a recession. He said in a note to investors that housing remains affordable and that Warburg's economist expects steady economic growth through 2003.
Mr. Gordon further noted that MGIC, Radian, PMI, and Triad have "long experience" in underwriting and pricing mortgage credit risk, hold significant excess capital, and maintain geographically diversified portfolios. A majority of the borrowers that the companies insure are first-time homebuyers, which keeps the average loan size at around $120,000.
"All four stocks are trading at the cheap end of their valuations," Mr. Gordon wrote.
