Genworth Reports Profit as Mortgage Results Improve
Genworth Financial Inc., the mortgage guarantor and life insurer, reported a profit for a fourth straight quarter as results improved in its business backing home loans.
Second-quarter net income was $77 million, or 16 cents a share, compared with a loss of $50 million, or 11 cents, in the year-earlier period, the Richmond, Virginia-based insurer said today in a statement distributed by PR Newswire. Operating income, which excludes some investment results, was 31 cents a share, beating the 28-cent average estimate of 15 analysts surveyed by Bloomberg.
Genworth, led by Chief Executive Officer Michael Fraizer, is among mortgage insurers tightening underwriting standards and raising prices to recover from losses that started in 2008. The insurer said in February it expects the mortgage unit to report quarterly profits by mid-2011 as the quality of underwriting improves.
These are not “normal times,” for mortgage insurers, said Eric Berg, an analyst with Barclays Capital in New York, who has an “overweight/positive” rating on Genworth. “We were not expecting the mortgage insurance business to be profitable in the second quarter, but we were expecting the loss to shrink,” he said. The insurers pay lenders when homeowners default and foreclosure fails to recoup costs.
U.S. Mortgage Insurance
Genworth reported $40 million in operating losses in the U.S. mortgage-insurance segment, compared with a $134 million loss in the year-earlier quarter. International mortgage gains were $105 million, compared with $87 million.
Genworth has gained more than 39 percent in New York Stock Exchange composite trading this year and is the third-best performer in the 24-company KBW Insurance Index in the same period. It rose 23 cents to $15.79 at 4 p.m. in New York trading before the earnings announcement.
PMI Group Inc. posted a second-quarter loss today that missed analysts’ estimates on increased paid claims. PMI, based in Walnut Creek, California, fell about 15 percent. MGIC Investment Corp., the largest U.S. mortgage guarantor, last week posted its first profit in 12 quarters on lower claims costs.
The industry sold $81.8 billion of coverage last year, a 58 percent decline from 2008, according to data compiled by Inside Mortgage Finance, a trade publication. In the second quarter, housing sales recovered and the U.S. unemployment rate fell to 9.5 percent, down from a quarter-century high of 10.5 percent in October.
Borrowers caught up on overdue mortgages faster than new delinquencies were reported on insured home loans in February for the first time in almost four years, a trend that continued in March, April and May. The ratio of cures to defaults on guaranteed loans was 1.08 in May compared with .60 a year earlier, according to data from the Mortgage Insurance Companies of America.
Darin Arita, a Deutsche Bank Securities Inc. analyst who rates Genworth a “hold,” said the period of losses may be ending. “A lot of that comes from the government programs, and a lot of that comes from buyers who were delinquent and are now paying,” he said in an interview before the earnings release.
The U.S. government’s Making Home Affordable loan- modification program permanently changed more than 230,000 mortgages through March. About 781,000 trial modifications were under way through March, up from about 487,000 in September, according to the government.
Revenue in the second quarter totaled $2.4 billion, compared with $2.48 billion in the year-earlier period. Revenue from premiums fell to $1.47 billion from $1.5 billion. Life insurance revenue increased to $64 million from $49 million.
Net investment losses widened to $76 million from $59 million in last year’s second quarter.