Why Mortgage Insurers Are Poised for Growth in a Post-2025 Housing Landscape

The U.S. housing market in Q2 2025 is navigating a delicate balance between affordability pressures and resilient demand. Amid slowing price growth and elevated mortgage rates, mortgage insurance companies (PMIs) are emerging as critical enablers of homeownership access—particularly for low-down-payment borrowers. Regulatory tailwinds, robust capital positions, and exposure to government-backed lending programs position firms like MGIC (MTG) and RPMI Holdings (RPMI) as undervalued growth plays. Here's why investors should pay attention.

The PMI Resilience Play: Why Undervaluation Exists

Despite housing market headwinds, PMIs are underappreciated by the broader market. Key factors driving their hidden value:

1. PMIERs Compliance: Strength in Capital Requirements

The updated Private Mortgage Insurance Eligibility Requirements (PMIERs) for 2025–2026 have raised the bar for PMIs but also created a moat against weaker competitors. By requiring insurers to hold higher-quality liquid assets (e.g., excluding high-risk bonds), PMIERs have consolidated the industry around firms with strong balance sheets.

• MGIC's Position: As of March 2025, MGIC reported $5.9 billion in PMIERs-available assets, exceeding minimum requirements by $2.6 billion. This buffer, paired with a 3.9% loss ratio (Q1 2025), underscores its capacity to weather economic stress.
• RPMI's Edge: RPMI's reinsurance deals, such as its $250.6 million March 2025 transaction, demonstrate strategic risk management.

2. Low-Down-Payment Demand Remains Sticky

With median home prices near $427,000 (Q2 2025), the need for mortgage insurance—required for loans with <20% down—is here to stay. Even as mortgage rates remain elevated (6.78% as of late 2024), 70% of existing homeowners are “locked in” to sub-5% rates, limiting inventory growth and keeping demand for new mortgages robust.

• FHA/USDA Synergy: While not explicitly discussed in recent data, PMIs like MGIC and RPMI benefit indirectly from GSE dominance. FHA loans, which require as little as 3.5% down, are increasingly sought after. PMIs partner with lenders to cover risk on these loans, offering scalable revenue streams.

3. Margin Stability Amid Volatility

PMIs operate with high fixed-cost leverage. Once insured loans are on the books, marginal costs are minimal. Even as delinquency rates edge up (e.g., MGIC's 2.3% Q1 2025 primary delinquency rate), insurers can maintain profitability through:
- Premium renewal revenue: Most policies auto-renew annually.
- Share buybacks/dividends: MGIC's $750 million repurchase program and quarterly dividends signal confidence in cash flow resilience.

Regulatory Tailwinds: PMIERs as a Catalyst, Not a Hindrance

The phased PMIERs updates (fully implemented by 2026) have been misperceived as threats but are net positives for the industry:
- Eliminating “junk” assets from capital calculations forces PMIs to hold safer, liquid portfolios, reducing tail risk.
- Ending pandemic-era forbearance relief ensures insurers price risk accurately, aligning premiums with true credit risk.

Investment Thesis: Long-Term Growth with Caution

Buy PMIs for:
1. Demographic Tailwinds: Millennial and Gen Z homebuyers (now 80% of first-time buyers) rely on low-down-payment options.
2. FHA/USDA Expansion: Rising popularity of government-backed loans (e.g., USDA loans for rural areas) creates recurring PMI revenue.
3. Balance Sheet Strength: MGIC and RPMI's liquidity ($824M and $1.1B, respectively) insulate them from short-term rate spikes.

Hold Off on Shorts:
- PMIs are rate-sensitive, but the Fed's pivot to rate cuts (anticipated by late 2025) could unlock pent-up demand.
- A 1% drop in mortgage rates could boost NIW (New Insurance Written) by 15–20%, given PMIs' high operating leverage.
- Historical Backtest Insights: When the Fed cut rates between 2020–2025, a buy-and-hold strategy for MGIC (MTG) and RPMI (RPMI) over 60 trading days showed differentiated results. MGIC achieved a 4.62% CAGR with a 1.62% excess return, while RPMI lagged at 3.12% CAGR and -1.88% excess return. Risk metrics also diverged: MTG's -8.61% maximum drawdown and 0.57 Sharpe ratio outperformed RPMI's -12.73% drawdown and 0.14 Sharpe ratio, underscoring MTG's resilience during accommodative policy.

Backtest the performance of MGIC (MTG) and RPMI Holdings (RPMI) when 'buy condition' is triggered by Federal Reserve rate cuts, and 'hold for 60 trading days', from 2020 to 2025.

Risks to Consider

• Economic Downturn: Rising delinquencies (already up 14% Q/Q in early 2025) could strain loss ratios.
• Regulatory Uncertainty: GSE exit from conservatorship or changes to PMIERs could disrupt pricing models.
• Rate Volatility: Near-term rate hikes could delay housing market stabilization.

Final Call: Buy MGIC and RPMI with a 3–5 Year Horizon

The PMI sector is undervalued relative to its role in democratizing homeownership. With robust capital, sticky revenue streams, and regulatory reforms that favor consolidation, MGIC and RPMI are prime candidates for investors seeking exposure to a resilient, underfollowed space.

Stay long-term focused—this is a structural play, not a trading call.

Data as of June 19, 2025. Past performance does not guarantee future results.