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As Refis Fall Off a Cliff, Radian and MGIC Rally

Attention borrowers: Call your favorite banker...he needs your business.

Three large banks have announced earnings in the past 24 hours, and one powerful theme has emerged. Mortgage originations have fallen off a cliff.

Wells Fargo underwrote one of of every five mortgages in the U.S. last year, and since October, slowing origination has caused the bank to lay off 6,400 employees. Chief Financial Officer Tim Sloan explained to us yesterday on-air that mortgage refinancings are the culprit. As rates have risen since last May's record low, current home owners have had progressively less incentive to refinance their mortgages.

As an example, consider a 30-year fixed-rate mortgage for $500,000. At last May's record low rate of 3.40 percent, the monthly payment would be $2,320. Today, at 4.40 percent, that jumps to $2,590, an additional $270 per month or $3,240 per year.

It's a rude awakening for borrowers, but one group of housing-related stocks seems not to have noticed: Mortgage and title insurers. These are the companies that provide behind-the-scenes assurances to banks and borrowers once mortgages have been approved. Most of them have lost money each year since 2007 and yet their stocks have been on an a tear, even making the S&P 500's impressive 25.5 percent return over the past 12 months look like a flat line.

We recognize that hope springs eternal on Wall Street. Stocks are up as analysts finally forecast a return to profitability this year for Radian Group Inc. (RDN ) and MGIC Investment Corp. (MTG ) . We also suspect the refi implosion means forecasts will prove overly optimistic, and the stocks will correct.

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