After throwing in the towel on a $2.7 billion merger, Genworth considering spinning off its mortgage insurance division.

One of the nation’s largest private mortgage insurers is considering spinning off that profitable business segment in an initial public offering (IPO), after throwing in the towel on a $2.7 billion merger that stalled for years.

Genworth Financial Inc. recently announced that it’s terminated a 2016 merger agreement with China Oceanwide Holdings Group Co. Ltd., which was reportedly hindered by data privacy concerns.

Based in Richmond, Virginia, Genworth Financial is an insurance holding company that also provides long-term care insurance. Although Genworth has been publicly traded since 2004, spinning off its mortgage insurance division in an IPO could help that business continue to grow, while allowing the parent company to further explore its options for providing long-term care insurance overseas, the company said.

Genworth’s mortgage insurance division, Genworth Mortgage Insurance Corp., had a banner year in 2020, boosting new insurance written by 60 percent to $99.9 billion, making it the nation’s fifth-largest provider.

New insurance written by top 6 private mortgage insurers

Source: Annual reports (MGIC, Essent, Radian, Genworth, National MI) and 2019 and 2020 Arch supplemental SEC filings. 

All of the big six private mortgage insurers profited from last year’s boom in mortgage refinancings, even as they competed with FHA, VA and USDA lenders for the business of homebuyers making small down payments. Private mortgage insurers guarantee lenders against losses, with Fannie Mae and Freddie Mac requiring private mortgage insurance whenever homebuyers make down payments of less than 20 percent.

The mortgage refinancing boom has fueled IPOs by nonbank mortgage lenders, potentially setting the stage for Genworth to spin off its mortgage insurance division.

Genworth said it’s already paved the way for an IPO by divesting itself of its Australian and Canadian mortgage insurance operations, and by completing a $750 million debt offering to fund Genworth Mortgage Insurance Corp.

In its latest annual report to investors, Genworth noted that last year, Fannie Mae and Freddie Mac imposed capital restrictions on its mortgage insurance division, following downgrades of debt held by parent company Genworth Holdings.

According to the industry group U.S. Mortgage Insurers, private insurers backed $600 billion in loans last year, with 65 percent of that volume for new purchases and 35 percent for refinanced loans.

With the mortgage refinancing boom set to cool, private mortgage insurers will be even more reliant on winning business from homebuyers. But with housing inventories tight, growth in purchase mortgages business isn’t expected to make up for the drop in refinancing.

Fannie Mae economists project mortgage refinancing volume will drop by 46 percent next year, to $1.146 trillion. Purchase loan volume is also projected to plateau next year, falling by 1 percent to $1.797 trillion.

Mortgage originations forecast

Source: Fannie Mae

Prospects for growth in the private mortgage insurance business are also clouded by the prospect of FHA rate cuts. Although real estate industry groups are pushing the Department of Housing and Urban Development to cut FHA premiums, the Biden administration’s Secretary of Housing, Marcia Fudge, recently said there are “no near-term plans” to do so.

Email Matt Carter

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