Given the increased focus on lending to people with low and moderate incomes, stocks of private mortgage insurance companies may be getting more attention.
CMAC Mortgage is a case in point. Shares of the Philadelphia-based company surged 10% last week, closing Friday at $27.375, up $2.50. MGIC Investments, the Milwaukee-based mortgage insurer, also enjoyed a rise last week, ending at $31.125, up 37.5 cents.
Private mortgage insurers write policies that guard against default by borrowers who make down payments of less than 20%.
CMAC, according to Goldman Sachs analyst Robert Hottenson, is just playing catch-up.
"The stock has lagged," he explains. "Last year CMAC was up 6%. This year it is off 1%. That's 5% net over basically a two-year period. But earnings growth has been 15 to 20%, with a forecast of 20% for next year."
As a result, the earnings multiple of CMAC has contracted. It is now 7.1 times Mr. Hottenson's 1995 earnings estimates, a level that is among the lowest in the mortgage banking and insurance universes.
"I think it is a partial recovery," he says, adding that he thinks there is more upside for CMAC and the other mortgage insurers.
Part of that upside may come from the push to make more loans to borrowers with modest means. As that outreach effort is intensified, analysts say, more loans with low down payments will be made and the need for private mortgage insurance will rise.
In September, Freddie Mac, formally the Federal Home Loan Mortgage Corp., moved to increase the amount of mortgage insurance required for loans with down payments less than 15%. Fannie Mae, formally the Federal National Mortgage Association, has given indications that it may follow suit this week.
And though more low-down payment mortgage will mean more risk taking for the mortgage insurance industry, Mr. Hottenson points out that they -- unlike Fannie Mae and Freddie Mac, which charges the same guarantee fee no matter what the down payment -- can charge more for higher risk.
In other news, Resource Bancshares Mortgage, a small Columbia, S.C., mortgage bank, announced after the close of trading Friday that it had initiated a stock repurchase program but did not specify a dollar amount.
Resource Bancshares closed Friday at $10.75, up 50 cents.
"The company has performed well since the initial public offering effected June 3, 1993," said vice chairman Lee Shelton, "Depending upon market performance of the company's common stock, there may be excellent opportunities for the company to enhance shareholder value through stock repurchases."
