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Genworth Files 'Red Herring' for Mortgage Insurance Unit IPO

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What You Need to Know

  • Genworth Financial is moving toward selling a stake in its mortgage insurance business through an IPO.
  • Genworth Mortgage Holdings works with about 1,800 mortgage lenders, including 19 of the 20 biggest mortgage loan originators.
  • The prospectus lists the COVID-19 pandemic as well as its parent's LTCI business as risk factors.

Genworth Financial Inc. has started filing the paperwork to sell a stake in its mortgage insurance business to public investors through an initial public offering.

A “red herring,” or preliminary prospectus, for the IPO shows that Genworth Mortgage Holdings Inc. would be based in Raleigh, North Carolina, and could have stock that would trade on the Nasdaq Global Select Market.

The size of the offering, the anticipated share price and the stock symbol are not yet available.

Genworth Mortgage Holdings has been in the private mortgage insurance business since 1981, and it now operates in all 50 states and the District of Columbia, according to the preliminary prospectus.

The mortgage insurance business works with about 1,800 mortgage lenders, including 19 of the 20 biggest mortgage loan originators.

It produced $370 million in net income for 2020 on $1.1 billion, down from $677 million in net income on $979 million in revenue for 2019.

COVID-19 Risk Factor

One risk factor listed in the prospectus is the COVID-19 pandemic.

Genworth Financial, the Richmond, Virginia-based parent company, has been a larger issuer of life insurance and annuities, and a leader in the private long-term care insurance market.

The LTCI business has suffered from the effects of inaccurate assumptions about interest rates and policyholder behavior.

COVID-19 has helped the LTCI business, at least in the short term, by sharply reducing use of paid long-term care services.

Managers of the mortgage business say the pandemic has hurt their business, by leading to disruption in the mortgage lending and mortgage foreclosure processes, and by hurting some  borrowers’ ability to make mortgage payments.

“Any delays in foreclosure, including foreclosure moratoriums imposed by state and local governments and the [government-sponsored enterprises]  due to COVID-19, could cause our losses to increase as expenses accrue for longer periods or if the value of foreclosed homes further decline during such foreclosure delays,” the mortgage business stated.

“If we experience an increase in claim severity resulting in claim amounts that are higher than expected, our business, results of operations and financial condition could be adversely affected.”

The mortgage business lists Genworth Financial’s problems with LTCI coverage as another risk factor.

“Our parent’s challenges in its long-term care insurance business, or other financial or operational difficulties, may also be attributed to us by investors and may have an adverse effect on the perception of our common stock as an investment,” the mortgage business said.

“Additionally, any downgrade or negative outlook of our parent’s ratings may negatively impact our ratings by certain ratings agencies whose rating protocols and group rating methodologies require adverse ratings actions in cases of parent or sister company rating downgrades or adverse rating actions.” the firm said.

“A downgrade in our ratings may adversely affect our relationship with current and potential customers as well as our ability to write new business and access capital on favorable terms.”

Tom McInerney, Genworth’s CEO, is not listed in the current version of the Genworth Mortgage Holdings red herring. That company’s CEO is listed as Rohit Gupta. The red herring includes blanks for the names of 10 board members.

Tom McInerney (Photo: Victor J. Blue/Bloomberg)