NEW YORK ( TheStreet) -- The U.S. Treasury Department's latest changes to the mortgage modification program will deliver significant benefits to mortgage insurers, according to analysts at FBR Capital Markets.
On Friday, the Treasury Department released an updated guidance for the Home Affordable Mortgage Modification Program (HAMP), extending the program by another year to the end of 2013 and targeting an increase in principal reductions.
The government will now triple the incentives paid to servicers who reduce principal. Servicers will be paid between 30 cents to 63 cents for every $1 of reduced principal on early-stage delinquent loans compared to 10 cents to 21 cents earlier. For loans that are more than 6 months delinquent, the compensation has been increased to 18 cents from 6 cents earlier.More importantly, the revised program will also pay Fannie Mae (FNMA) and Freddie Mac (FMCC) incentives to reduce the principal on loans. Greater participation from Fannie Mae and Freddie Mac in principal reductions could deliver a $4 billion benefit to the mortgage insurance industry, according to the analysts assuming the latest program is atleast as successful as the earlier version. The analysts point out that loan forgiveness benefits mortgage insurers in one of two ways. They could either completely avoid a claim or at the very least it could also lower the claimable amount, as insurance now applies to the newly modified loan amount, not the original loan value. MGIC Investment (MTG) and Radian Group (RDN) may be among the companies that benefit. Shares of Radian were up nearly 2% after being down by more than 5% earlier in the session on Monday. Shares of MGIC were also rebounding, down about 1% after declining nearly 6% earlier in the session.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV