Hedge funds roll dice again on mortgage insurance firms
Hedge funds and big banks are investing millions into the U.S. mortgage-insurance industry, which nearly died out during the downturn.
During the housing bust, the industry collectively racked up $21 billion in debt, and three firms went out of business. Now, firms such as Goldman Sachs and hedge fund Paulson & Company are taking another look at the sector — which provides some $710 billion of coverage to mortgage investors and lenders in the U.S., and also covers individual borrowers.
New York-based Paulson has stakes in insurance firm Genworth Financial – which saw a 62 percent rise in share price this year – and Radian Group, a credit enhancement company. Radian’s share price increased 133 percent this year; likewise, mortgage insurer MGIC Investment Corporation saw its stock price jump 189 percent.
“Many investors, after having been on the sidelines, viewed the housing recovery as real this time,” Radian CEO S.A. Ibrahim said.
Homebuyers whose mortgage down payments are less than 20 percent are required to take out this coverage. In the event of a foreclosure, the insurer takes the first loss. [WSJ] — Mark Maurer