Genworth MI Canada (MIC.TO)

[FiNaL WaR]

Ill would like to know a bit more about it, what does the MI stand for ?

i find the current P/E a bit low at 5.88
they actually pay a dividend around 6.25% yield and i might like to get a small position soon.


any information i might not know about them ?

??? mi = mortgage insurance ???

[philharmonic]

Yes, MI stands for Mortgage Insurance.

They're Canada's second largest mortgage insurer, behind CHMC. I'd say this is a good bet. Since 90% of the mortgages they insure are guaranteed by the government anyway, the company itself is probably pretty stable.

[Mark77]

Yes, MI stands for Mortgage Insurance.

They're Canada's second largest mortgage insurer, behind CHMC. I'd say this is a good bet. Since 90% of the mortgages they insure are guaranteed by the government anyway, the company itself is probably pretty stable.

Actually that's not the case. MIC.TO takes a *first loss* position when the mortgages default. If we assume that there is going to be a large downturn that causes lots of claims, MIC.TO would be on the hook for the first 10% worth of the loss.

For instance:

$100k loan, defaults, leaving a deficiency of $30k.

Genworth is on the hook for the first 10% of the overall loan, so they owe $10,000.

CMHC picks up the rest (ie: $20k).

IMHO, this stock is probably a short. Just like Ambac or PMI were in the USA prior to their housing collapse.

[FiNaL WaR]

Actually that's not the case. MIC.TO takes a *first loss* position when the mortgages default. If we assume that there is going to be a large downturn that causes lots of claims, MIC.TO would be on the hook for the first 10% worth of the loss.

For instance:

$100k loan, defaults, leaving a deficiency of $30k.

Genworth is on the hook for the first 10% of the overall loan, so they owe $10,000.

CMHC picks up the rest (ie: $20k).

IMHO, this stock is probably a short. Just like Ambac or PMI were in the USA prior to their housing collapse.

REMOVED a part of the text by myself - out of subject

i might have to be careful for interest rates changes if i take a position.

[philharmonic]

don't you think the mortgage industry here is safer than the USA? i mean prices seem to be do you seem that ''inflated''

Oh dear lord. Please don't start that discussion here :facepalm:

http://forums.redflagdeals.com/feds-kill-30-year-cmhc-mortgages-lower-refi-limit-80-a-1192864/

[FiNaL WaR]

Oh dear lord. Please don't start that discussion here :facepalm:

http://forums.redflagdeals.com/feds-kill-30-year-cmhc-mortgages-lower-refi-limit-80-a-1192864/

i won't i won't my goal would be to know more about how much delinquency they can handle before they have to cut dividend. the position i want to enter is for long term 5 years +

[philharmonic]

Actually that's not the case. MIC.TO takes a *first loss* position when the mortgages default. If we assume that there is going to be a large downturn that causes lots of claims, MIC.TO would be on the hook for the first 10% worth of the loss.

For instance:

$100k loan, defaults, leaving a deficiency of $30k.

Genworth is on the hook for the first 10% of the overall loan, so they owe $10,000.

CMHC picks up the rest (ie: $20k).

Ah! That's interesting. So Genworth covers 10% of the overall loan regardless of what might be reclaimed in the repossession process? And what do you mean by "deficiency of $30K"? Could you please explain your math to someone mathematically challenged? :D

Thanks!

[Mark77]

Ah! That's interesting. So Genworth covers 10% of the overall loan regardless of what might be reclaimed in the repossession process? And what do you mean by "deficiency of $30K"? Could you please explain your math to someone mathematically challenged? :D

Thanks!

For example: Buy a house for $120k. Take a $100k loan with Genworth mortgage insurance.

House drops to $70k. Borrower defaults.

Genworth is on the hook for $10k. CMHC is on the hook for $20k. The 'deficiency' is $100k - $70k, the $70k being realized from the sale of the house.

[Mark77]

i won't i won't my goal would be to know more about how much delinquency they can handle before they have to cut dividend. the position i want to enter is for long term 5 years +

$265M "insurance in force"

backed by $5.4B of assets.

Means they are leveraged 50X.

If they even burn a small amount of their capital, they most certainly will face action from the ratings agencies, which will probably make it impossible to raise additional capital.

I can't envison any scenario of a housing downturn in which the dividend on this company is sustainable or this firm is viable. The dividend is high right now because the idea is to de-capitalize the firm as much as possible before the RE crash sets in.

[FiNaL WaR]

$265M "insurance in force"

backed by $5.4B of assets.

Means they are leveraged 50X.

If they even burn a small amount of their capital, they most certainly will face action from the ratings agencies, which will probably make it impossible to raise additional capital.

I can't envison any scenario of a housing downturn in which the dividend on this company is sustainable or this firm is viable. The dividend is high right now because the idea is to de-capitalize the firm as much as possible before the RE crash sets in.

thanks alot mark for this valuable information

[Mark77]

thanks alot mark for this valuable information

The numbers are in their 2011 Annual Report, available on their website. Even the scheduled/chartered banks aren't as leveraged, especially into the sort of subprime debt that is guaranteed by this firm.

Practically how a RE crash would work with respect to MIC.TO is this:

a) RE prices drop.
b) MIC's insured clients find themselves in negative equity. Some, without jobs, declare bankruptcy, leaving MIC on the hook.
c) Lenders realize that MIC's capital position is inadequate to pay claims, and refuse to do any more business with them, including renewing the mortgages they've written.
d) More MIC-backed mortgages go into default at renewal time as folks can't afford the much higher interest rates that the lenders are demanding for paper with relatively poor insurance.
e) MIC' capital position is further hit. They end up trapped in a corner where they can't sell any more insurance (because nobody in the market believes that they'll pay up), nor can they raise capital (because the ratings agencies realize that their business is unsustainable).
f) MIC files for receivorship and the beneficiaries of the insurance policies are paid out a mere fraction of their claims in excess of all of the legal expenses associated being bankrupt.