Radian Advances on Agreement to Cap Freddie Mac Claims

Radian Group Inc. (RDN) advanced in New
York trading after the mortgage insurer reached an agreement
with Freddie Mac to cap expenses tied to loans held by the U.S.-
controlled housing-finance company.

Radian gained 2.5 percent to $13.54 at 4:02 p.m. Shares of
the Philadelphia-based company have more than doubled this year.
Rival MGIC Investment Corp. (MTG) was little changed at $7.22.

The agreement caps at $840 million Radian’s costs tied to
25,760 first-lien mortgage loans that Radian insured and that
were delinquent as of Dec. 31, 2011, according to a statement
yesterday. The accord will cost Radian about $20 million in the
third quarter, which will be fully mitigated by lower losses in
future periods, the company said.

The agreement “suggests that their reserves for this stuff
were reasonably adequate,” Bose George, an analyst at Keefe
Bruyette Woods, said by phone. “If their reserve is adequate,
that’s a huge positive, because I think everyone agrees that the
outlook for these companies is very good.”

Radian paid Freddie Mac $255 million yesterday to cover
claims on the loans, according to a regulatory filing today. The
insurer also agreed to set aside $205 million to cover future
payouts. Some of that money can be returned to Radian if the
company successfully rescinds or denies coverage on loans.

Radian had previously paid $370 million to Freddie Mac on
claims tied to the loans included in the agreement, the company
said. Mortgage insurers cover losses when homeowners default and
foreclosures fail to recoup costs.

The firms are rebounding as a resurgent U.S. real-estate
market cushions losses on policies sold before the housing
downturn. Radian and MGIC both raised capital in stock and bond
sales this year.

The insurers may also benefit as the U.S. retools the
mortgage-finance system. President Barack Obama said in a speech
this month the government should play a smaller role covering
soured home loans and that private capital should take more risk
as Freddie Mac and Fannie Mae are wound down.

To contact the reporters on this story:
Zachary Tracer in New York at
ztracer1@bloomberg.net;
Noah Buhayar in New York at
nbuhayar@bloomberg.net

To contact the editors responsible for this story:
Christine Harper at
charper@bloomberg.net;
Dan Kraut at
dkraut2@bloomberg.net;
David Scheer at
dscheer@bloomberg.net


Comments are closed.