Radian: Ouch, to the Tune of $618 Million

Radian Group Inc. said Friday that it lost $618 million, or $7.74/share, during the fourth quarter as paid claims mounted, and the mortgage insurer set more aside to cover future expected losses. The quarterly loss compares to $158.3 million in earnings one year earlier.

The loss outstripped analysts’ estimates, with Reuters reporting that median analyst expectations were for a loss of $2.53 per share.

“We have come through a difficult year and the environment continues to be very challenging,” said S.A. Ibrahim, Radian’s CEO. “These challenges will remain with us for the near-term and may intensify, so we are looking at various scenarios and responses.” He did not elaborate on what responses were under consideration.

Driving the loss was a huge jump in the company’s provision for losses, which amounted to a $687.8 million charge for the quarter compared to just $84.3 million in the year-ago period. Radian ended the year with $1.3 billion in mortgage insurance loss reserves, it said.

Increased claims and rising loss severity led to $410 million in mortgage-insurance incurred losses, Radian said, while it also absored a $298 million write-down in the value of derivatives it held (including CDOs). Other losses included a $50 million pre-tax charge associated with a write-off of the company’s investment into C-BASS.

Default activity continued rising, as well. Total defaults reached 6.8 percent of the primary insurance portfolio at the end of the fourth quarter, compared to 5.43 percent at the end of 2006. But the jump in deliquencies was most noticable among the company’s insured Alt-A loans, with defaults at a reported 9.74 percent during Q4, versus 5.9 percent one year earlier.

32 percent of new insurance underwritten in the fourth quarter represented loans with an LTV above 95 percent; that was up from 24 percent in the fourth quarter of 2006.

Higher LTV loans have been singled out by other insurers as more likely to default and result in paid claims; mortgage insurer the PMI Group, Inc. said earlier this week that it would no longer write insurance for loans above 97 percent LTV.

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