Still, the wait may be longer than KBW's report appears to suggest. If it isn't, and President Obama and Congress manage to put a plan in place, KBW offers just a single sentence in the report to suggest how investors might position themselves.
"As the housing market recovers and the government moves to wind down the GSEs, we expect that value growth to shift to non-agency MBS REITs, bank portfolio lending, mortgage insurers, and specialty mortgage service providers," is what that sentence says.
However, KBW has a "market perform" rating on the three main publicly-traded mortgage insurers:
(RDN - Get Report)
MGIC Investment Corp
. KBW analyst Bose George, who covers Radian and MGIC, told me in August their exposure to legacy losses remains too big a risk, notwithstanding the opportunity that awaits them if they can survive to take advantage of what many believe will be a bigger role for the private mortgage insurance industry.
Bank portfolio lenders are too many to name here, and many will have to navigate a difficult interest rate environment before they can begin to take advantage of the expected government pullback from the mortgage market.
Specialty mortgage service providers are not exactly a secret. Shares of Ocwen have roughly quadrupled in the past two years, while those of the two other notable publicly-traded players,
Nationstar Mortgage Holdings
Walter Investment Corp.
, have more than doubled.
KBW analyst George, who also covers specialty mortgage servicers, has a "market perform" rating on all three names, arguing they are fairly valued.
That leaves non-agency MBS REITs. These are REITs that, unlike Annaly and American Capital, do not buy MBS issued by the GSEs, whose MBS are often called "agency securities," or "agencies." Many are mortgage REITs are hybrids, which buy both agency and non-agency debt. Still, the two non-agency REITs George covers--again it is George who follows this space--he rates "market perform." These are
PennyMac Mortgage Investment Trust
So KBW's big picture strategists, led by research chief Fred Cannon, see lots of opportunities in a broad sense, but when one starts looking at individual stocks, they're nearly all covered by Bose George and he isn't especially enthusiastic about any of them.
Neither George nor Cannon was available for an interview prior to the publication of this article, but they would likely respond that these are longer-term opportunities. If they are right, it may make sense to start buying some of these stocks now. Usually, by the time analysts get around to upgrading a stock, much of the upside is already gone.
Written by Dan Freed in New York