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Mortgage Servicing

Launched: April 27, 2015


As the US housing recovery embarks on its next leg up, MRP is recommending an additional theme to capture the broadening impact: Mortgage Servicing stocks engaged in title and mortgage insurance along with residential brokerage stocks. MRP's launched it first housing-related theme, on the homebuilders proper, on November 3, 2011; we believe new housing construction has a long way to go. We next added Home Improvement as a theme on February 10, 2015, as pending home sales turned up against a backdrop of rising incomes, strong payrolls, and surging household formations; we also believe this theme has more to go.

The new Mortgage Servicing theme builds on those foundations: most home sales require title insurance and most mortgages require mortgage insurance, whether to purchase or refinance. Moreover, these stocks are positioned for an added lift from further renewed gains in house prices. MRP's latest Viewpoint points that as "pent-up demand enters the market, higher house prices will have knock-on effects on the U.S. economy as a whole, from the balance sheets of consumers and financial institutions, to existing home turnover, to relocation activities. Millions of homeowners who previously had negative equity are already back above water. As prices recover further, these households should qualify for home equity lines that were out of the question a short time ago."

As a group, the brokers, mortgage and title insurance stocks are up in absolute terms and are now gaining relative strength against the XLF Financials ETF, creating a timely entry point. From a long-term perspective, the upturn in the group has a long way to go.



Last updated April 28, 2015
 
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Warren Hatch, PhD, CFA
Portfolio Management and Global Investment Strategy
McAlinden Research Partners

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