I said that I was going to invest in the Private Mortgage Insurance industry. I invested in two stocks, Genworth Financial $GNW (which is an arbitrage play) and Essent Group $ESNT .
With record low mortgage rates, many people are taking the opportunity to buy a house. If they don't have 20% deposit on the house, they need mortgage insurance and there are only 3 ways to obtain that:
1. Veteran Affairs
2. Federal Housing Administration
3. Private Mortgage Insurance (PMI)
The first 2 are government agencies and do not apply to everyone. Most people will go to the PMI, and there are only 6 PMI in the US. Essent Group is the most efficient of them.
The industry has been recovering from the 2008 financial crisis and now with this work from home trend, it is going to be accelerated as more people work move away from cities where rent is skyrocketing. These people will require buying new houses.
Essent Group has the lowest combined ratio in the industry and it is the one growing at the fastest rate. Soon, it will overtake Genworth to become market leader. Essent Group has already matured and is now even paying a dividend and it can possibly buy back shares in the future.
The main problem I see with Essent Group is that it is the most expensive of the PMIs. There is a premium on the stock. If you're betting on the PMI industry, I think the premium is worth it. It is like the JPMorgan Chase $JPM of the PMI industry and we know that JPM is the most expensive of the banks and that's because it is the best.
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