Credit Suisse Goes Long on Two Mortgage Insurers as Defaults Improve
Credit Suisse is going long on two mortgage insurance stocks citing declining default rates and book value stabilization as positive indicators. Research analyst Douglas Harter wrote that he expects private mortgage insurers to regain market share next year and in 2012 because improving default rates give insurers increased ability to profit from new business. These factors led the company to place outperform ratings on The PMI Group (PMI) and Radian Group (RDN), setting target prices of $5.50 for PMI and $12 for Radian. The firm maintains a neutral rating on MGIC Investment Corp. (MTG) with a $9 a share target. Credit Suisse said defaults of mortgages from the problematic vintages of 2005 to 2007 will peak in the second half and start declining thereafter. Analysts also expect the insurers to regain market share after recapitalizing and benefiting from price increases by the Federal Housing Administration (FHA). Still, overall economic weakness impacts the insurers' portfolio and hinders new insurance origination, and further regulatory reform could also hurt the industry, analysts said. Write to Jason Philyaw.