Insurer Shuns Subprime Risk

In the company's recent annual report to the SEC, Radian Guaranty acknowledged that the mortgage insurance industry faces challenges this year but indicated that it is prepared to manage the deterioration in subprime credit quality home loans.

In the report, Radian said that subprime accounted for 11% of the company's primary mortgage insurance risk-in-force in 2006. That includes A- as well as B&C loans. And data indicate that Radian actually reduced its subprime participation slightly from the year before.

And in his annual letter to shareholders, CEO S.A. Ibrahim said the company "declined to participate in unattractive business, most notably 'walking away' from deals in the bulk and subprime areas where we did not like the structure or felt the pricing and returns were unattractive."

But at the same time, Radian said in its annual report that alt-A and subprime lending continue to offer growth opportunities for the business in the future.

Nonprime loans - including alt-A and A- - accounted for 28.1% of Radian's primary mortgage risk-in-force at the end of last year, down slightly from 30.7% at the end of 2005.

But B&C loans, those with FICO credit scores below 575, accounted for less than 2% of primary mortgage insurance-in-force at the end of 2006, Radian said.

The company, which is in the process of merging with MGIC Investment Corp., also said that the persistency of its insurance-in-force improved to 67% last year, up from 58% in 2005.

Net income rose 11.3% from 2005 to $582.2 million in 2006. Mortgage insurance accounted for almost half of Radian's net income in 2006.

In his annual letter, Mr. Ibrahim said about half of Radian's mortgage insurance primary risk is protected through captive reinsurance arrangements or securitized through the company's SMART Home program.

"We continue to believe the MI industry is shaped like a barbell, with one end representing larger, more sophisticated lenders looking for structured and capital markets solutions as well as traditional mortgage insurance, and a second group of lenders seeking mainly traditional products," he wrote. (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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