Radian Reports $475m Q210 Loss, Expects 2010 Mortgage Insurance Claims to Total $1.5bn
Losses continue to mount at Radian Group (RDN), with the Philadelphia-based mortgage insurer reporting a net loss of $475.1m — $4.31 per share — in Q210. The news sent shares in the company plunging 16% in early trading. The loss is up from the $310.4m loss Radian reported in Q110, and comes despite an offering of 50m shares of stock in May and reports in June that the company's mortgage insurance operations are stabilizing because of improvements in the economy and housing markets. Radian reported net income of $231.9m in Q209. For the first half of 2010, Radian Group lost $785.43m, compared to net income of $4.85m during the same period of 2009. Radian Group offers mortgage insurance through its primary subsidiary, Radian Guaranty, offers private mortgage insurance and related risk mitigation products. The company paid $337.3m in total claims in Q210 — $332.8m in first-lien and $4.5m in second-lien claims. Radian said its expects claims to total $1.5bn in 2010. The provision for credit losses was $427.6m in Q210, including a $59.7m increase to its mortgage insurance reserves of $3.7bn. The increase in reserves, when combined with the decline in delinquent loans, further strengthens Radian’s reserve per delinquency for both primary and pool loans. The company said the number of primary and pool delinquent loans decreased by 4.1% and 4.3%, respectively, from the first quarter of 2010, which was the second consecutive quarterly decline in delinquent loans. In addition, Radian said new delinquencies continued to decline slightly in July. “Our second quarter results include significant fair value impact from the tightening of Radian’s credit spread and continued uncertainty regarding the aged delinquencies in our mortgage insurance book,” said CEO S.A. Ibrahim. “However, we are pleased with the signs of credit trend stabilization in both our mortgage insurance and financial guaranty businesses, which we believe are integral to Radian’s future success and long-term growth.” Prior to earnings season, broker/dealer investment bank Keefe, Bruyette and Woods (KBW) said delinquency trends are the most important near-term driver of company performance for the mortgage insurance sector. KBW projected industry reserve trends to slow and even turn favorable for some mortgage insurers as the reduction in overall delinquencies continues alongside positive loss mitigation activities. The May stock offering raised $526m, $100m of which was contributed to Radian Guaranty. The company's risk-to-capital ratio was 17.9:1 at end of Q210, compared to a ratio of 16.9:1 at the end of Q110, and 15.9:1 at the end of Q209. Radian wasn't the only mortgage insurer to make a debt offering in the quarter. MGIC Investment Corp. (MTG) issued a $700m stock offering in April on its way to posting its first quarterly profit in three years. Also like MGIC, Radian warned in its report that changes to the charters or business practices of Fannie Mae and Freddie Mac, or Radian's ability to remain an eligible insurance provider to the government-sponsored enterprises (GSEs), could impact its future performance. The company's net loss was driven by a $524.6m pre-tax loss recognized on derivatives. The decision to post that loss in Q210 was due to an improved market perception of Radian’s credit risk that significantly tightened Radian’s credit spread, and from the widening of general corporate credit spreads, the company said. New insurance written was $2.7bn in the quarter, and Ibrahim said Radian is working with lenders to increase new business by recapturing market share from the Federal Housing Administration (FHA) mortgage program. Write to Austin Kilgore. The author held no relevant investments.