Mortgage Insurance IPO

Brian Hicks

Updated September 19, 2013

The housing market will most likely continue its recovery! Yesterday, the Federal Reserve Board made a surprising announcement, stating it will not yet begin the much-anticipated tapering of its bond-buying program.

housing planYou’re probably breathing a sigh of relief right now, particularly if you’ve been eyeing the housing market as a possible investment venture. And you’re not the only one. The Fed’s news is likely to make Essent Group Ltd. very happy as well.

What is Essent Group Ltd.?

Essent Group Ltd. is a mortgage insurance company. When someone buys a home and can no longer make payments because of financial hardship, mortgage insurance can step in to recoup the losses for the bank.

Usually, homeowners must purchase mortgage insurance if they do not make a down payment of at least 20 percent on the purchase price of the home they are buying.

And this company is likely enjoying the news from the Fed because it decided to file an initial public offering three days ago. Good timing, right?

Investors such as Goldman Sachs Group Inc. (NYSE: GS) and George Soros back the company. Goldman Sachs, JPMorgan Chase & Co (NYSE: JPM), and Barclarys Plc (NYSE: BCS) will all be involved in the management of the share sale.

At this point, the offering is a proposed $287.5 million, but according to Bloomberg, this number is just a placeholder. It’s just enough to figure out registration fees, so the amount may change. As of right now, the valuation of the company has not been released.

The company plans to list its shares on the New York Stock Exchange. You’ll be able to find it under the ticker ESNT once it goes public.

Essent Group’s Recent Performance

As an investor, you likely want to know if you should put some money into this company once its available to the public. A good way to determine this is to examine the figures of its recent performance.

The good news is that it’s been growing for quite some time. In the first half of the year, the company made $30.1 million in profits. This was great news considering the company lost $12.5 million the year before.

And it looks like the company will continue to make a profit. The Mortgage Bankers Association (MBA) reports that refinancing and home purchase demand was up the last week of August by 1.3 percent. This means more people will need to purchase mortgage insurance.

Now, with the Fed announcing it won’t taper its stimulus, mortgage rates will likely stay low. When the Fed first mentioned it might taper back in May, interest rates shot up a whole percent. They grew from 3 percent in May to about 4.5 percent this month.

Now that the Fed still funding the $85 billion bond-buying program, mortgage rates will likely stay where they are or even decrease. This means more people will want to buy a home because the monthly cost will be lower and they can get more for their money.

The housing market is on the path to making a full recovery now, and that means home prices will likely continue to rise. While this may not sound like good news to home buyers, it’s really good news to mortgage insurance companies such as Essent Group. Higher home prices mean mortgage insurance will cost more. The more mortgage insurance costs, the more mortgage insurers will profit.

But now that we’ve finished discussing how good the housing market is for buyers and mortgage insurance company Essent Group, let’s talk about you.

When you invest in a company, you make money when the company makes money. With the housing market continuing to recover, lower mortgage rates, more buyers, and higher priced homes, Essent Group is set up to bring in a lot of money.

While it’s not listed yet, it won’t be long before it is, so keep your eyes on the news. Watch how the company determines its valuation, and keep an eye on what happens to the housing market and the value of homes with the recent news of the Fed not tapering.

With all of these indicators, it’s likely you’ll have a clear picture of whether or not you should invest in Essent Group when it’s let loose on the New York Stock Exchange.


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