[July 10, 2014] |
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Radian Provides Comment on Proposed GSE Requirements for Private Mortgage Insurer Eligibility
PHILADELPHIA --(Business Wire)--
Radian (News - Alert) Guaranty Inc., the mortgage insurance subsidiary of Radian Group
Inc., today commented on the proposed Private Mortgage Insurer
Eligibility Requirements (PMIERs) developed by Fannie Mae and Freddie
Mac (GSEs) and issued by the Federal Housing Finance Agency (FHFA),
which were released earlier today. The proposed PMIERs are intended to
provide revised requirements that the GSEs will impose on private
mortgage insurers (MIs), including Radian Guaranty, to remain eligible
insurers of loans purchased by the GSEs.
"Radian fully supports the need for strong counterparties to Fannie Mae
and Freddie Mac, and the need for well-defined standards against which
private mortgage insurers should be measured," said Radian Guaranty
President Teresa Bryce Bazemore. "We believe appropriately structured
PMIERs will better position our industry to continue serving its
critical role in the housing finance market, including providing worthy
borrowers with access to homeownership."
The proposed PMIERs reflect limited initial input from Radian. The
company will provide additional commentary to the FHFA on several areas
of the proposed PMIERs during the public comment period, which is
expected to end on Monday, September 8, 2014. Among these areas, Radian
will note that the proposed capital requirements are more onerous than
Radian's historical default experience suggests would be needed to
withstand a severe stress event.
The company's comments will also outline how the proposed PMIERs are
inconsistent with the FHFA's stated goal of expanding access to mortgage
credit and reducing taxpayer risk by increasing the role of private
capital in the mortgage market.
Bazemore added, "We look forward to continuing our dialogue with the
FHFA and the GSEs as they gather input on the PMIERs. We are proud of
our strong working relationship that was also in place as Radian met all
of its obligations during the greatest economic stress in our company's
history, paid more than $5 billion in claims, and strengthened our
capital levels to support continued low downpayment lending."
Radian will host a conference call at 6:00 p.m. Eastern time today to
discuss the proposed PMIERs and their potential impact on the company.
Details for the conference call may be found below; the proposed PMIERs
and additional information may be found on Radian's website at www.radian.biz/pmiers.
TIMEFRAME AND EXPECTATION FOR COMPLIANCE
After the public comment period ends, the FHFA is expected to review and
consider input before publishing the final PMIERs. All aspects of the
PMIERs are expected to become effective 180 days after their final
publication. Approved insurers will be given an extended transition
period of up to two years from the final publication date to be in
compliance with the financial requirements of the PMIERs. Based upon an
estimated final publication date of the end of 2014, Radian expects a
transition period through January 1, 2017.
Radian remains an eligible mortgage insurer with the GSEs and expects to
be able to fully comply with the PMIERs within the transition period.
The company has
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approximately $800 million of currently available liquidity;
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the potential to monetize or utilize its financial guaranty business,
which had $1.2 billion of statutory capital and an additional $376
million in claims-paying resources as of March 31, 2014; and
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the potential to leverage various other options, if needed, including
external reinsurance.
Radian Asset received approval from the New York Department of Financial
Services to pay an extraordinary dividend to Radian Guaranty of $150
million. Radian Asset expects to request an additional dividend in 2015.
Radian Chief Executive Officer S.A. Ibrahim added, "We are confident
that Radian will be able to comply with the proposed PMIERs within the
transition period. Based on our holding company cash position and other
potential options, we do not expect compliance with the PMIERs to
require Radian to raise external capital."
Ibrahim continued, "We do believe that these proposed requirements, if
not modified, have the potential to increase the cost of borrowing for
future homebuyers, and could also restrict access to credit. This may
impact many low- to moderate-income, deserving borrowers, including
certain minority groups, who are particularly vulnerable today based on
lower credit scores and limited savings for a downpayment."
CONFERENCE CALL
Radian will discuss the proposed PMIERs in a call today, starting at
6:00 p.m. Eastern time. The conference call will be broadcast live over
the Internet at http://www.radian.biz/page?name=Webcasts
or at www.radian.biz.
The call may also be accessed by dialing 800-230-1093 inside the U.S.,
or 612-288-0329 for international callers, using passcode 331702 or by
referencing Radian.
A replay of the webcast will be available on the Radian website
approximately two hours after the live broadcast ends for a period of
one year. A replay of the conference call will be available
approximately two hours after the call ends for a period of thirty days,
using the following dial-in numbers and passcode: 800-475-6701 inside
the U.S., or 320-365-3844 for international callers, passcode 331702.
ABOUT RADIAN
Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia, provides
private mortgage insurance and related risk mitigation products and
services to mortgage lenders nationwide through its principal operating
subsidiary, Radian Guaranty Inc. These services help promote and
preserve homeownership opportunities for omebuyers, while protecting
lenders from default-related losses on residential first mortgages and
facilitating the sale of low-downpayment mortgages in the secondary
market. Additional information may be found at www.radian.biz.
FORWARD-LOOKING STATEMENTS
All statements in this press release that address events, developments
or results that we expect or anticipate may occur in the future are
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, Section 21E of the Securities Exchange Act of
1934 and the United States ("U.S.") Private Securities Litigation Reform
Act of 1995. In most cases, forward-looking statements may be identified
by words such as "anticipate," "may," "will," "could," "should,"
"would," "expect," "intend," "plan," "goal," "contemplate," "believe,"
"estimate," "predict," "project," "potential," "continue," "seek,"
"strategy," "future," "likely" or the negative or other variations on
these words and other similar expressions. These statements, which may
include, without limitation, projections regarding our future
performance and financial condition, are made on the basis of
management's current views and assumptions with respect to future
events. Any forward-looking statement is not a guarantee of future
performance and actual results could differ materially from those
contained in the forward-looking statement. These statements speak only
as of the date they were made, and we undertake no obligation to update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. We operate in a changing
environment. New risks emerge from time to time and it is not possible
for us to predict all risks that may affect us. The forward-looking
statements, as well as our prospects as a whole, are subject to risks
and uncertainties that could cause actual results to differ materially
from those set forth in the forward-looking statements including:
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changes in general economic and political conditions, including
unemployment rates, changes in the U.S. housing and mortgage credit
markets (including declines in home prices and property values), the
performance of the U.S. or global economies, the amount of liquidity
in the capital or credit markets, changes or volatility in interest
rates or consumer confidence and changes in credit spreads, all of
which may be impacted by, among other things, legislative activity or
inactivity, actual or threatened downgrades of U.S. government credit
ratings, or actual or threatened defaults on U.S. government
obligations;
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changes in the way customers, investors, regulators or legislators
perceive the strength of private mortgage insurers or financial
guaranty providers, in particular in light of the fact that certain of
our former competitors have ceased writing new insurance business and
have been placed under supervision or receivership by insurance
regulators;
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catastrophic events, municipal and sovereign or sub-sovereign
bankruptcy filings or other economic changes in geographic regions
where our mortgage insurance exposure is more concentrated or where we
have financial guaranty exposure;
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our ability to maintain sufficient holding company liquidity to meet
our short- and long-term liquidity needs;
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a reduction in, or prolonged period of depressed levels of, home
mortgage originations due to reduced liquidity in the lending market,
tighter underwriting standards, or general reduced housing demand in
the U.S., which may be exacerbated by regulations impacting home
mortgage originations, including requirements established under the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the
"Dodd-Frank Act");
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our ability to maintain an adequate risk-to-capital position, minimum
policyholder position and other surplus requirements for Radian
Guaranty Inc. ("Radian Guaranty"), our principal mortgage insurance
subsidiary, and an adequate minimum policyholder position and surplus
for our insurance subsidiaries that provide reinsurance or capital
support to Radian Guaranty;
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Radian Guaranty's ability to comply with proposed Private Mortgage
Insurance Eligibility Requirements ("PMIERs") within the applicable
transition period, which may require us to contribute substantially
all of our holding company cash and investments to Radian Guaranty,
and also could depend on our ability to: (1) successfully monetize
Radian Asset, a direct subsidiary of Radian Guaranty, or otherwise
utilize the capital in Radian Asset such that we are provided credit
for such capital under the PMIERs; and (2) obtain reinsurance for a
portion of our mortgage insurance risk-in-force in a manner that is
compliant with the PMIERS. The amount of capital or capital relief
that may be required to comply with the PMIERs also may be impacted by
the performance of our mortgage insurance business, including the
losses we incur and the amount of new business we write, among other
factors. Contributing a significant portion of our holding company
cash and investments to Radian Guaranty would leave Radian Group with
less liquidity to satisfy its obligations, and we may not be
successful in monetizing or otherwise utilizing the capital of Radian
Asset or in obtaining reinsurance for our mortgage insurance
risk-in-force on terms that are acceptable to us, if at all. In the
event we are unable to successfully execute these or similar
transactions or strategies, or such transactions are not available on
terms that are acceptable to us, we may be required or decide to seek
additional capital by incurring additional debt, by issuing additional
equity, or by selling assets, which we may not be able to do on
favorable terms, if at all. The ultimate form of the PMIERs and the
timeframe for their implementation remain uncertain;
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our ability to continue to effectively mitigate our mortgage insurance
and financial guaranty losses;
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a more rapid than expected decrease in the levels of mortgage
insurance rescissions and claim denials, which have reduced our paid
losses and resulted in a significant reduction in our loss reserves,
including a decrease in net rescissions or denials resulting from an
increase in the number of successful challenges to previously
rescinded policies or claim denials (including as part of one or more
settlements of disputed rescissions or denials), or by Fannie Mae or
Freddie Mac (the "Government-Sponsored Enterprises" or the "GSEs")
intervening in or otherwise limiting our loss mitigation practices,
including settlements of disputes regarding loss mitigation activities;
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the negative impact that our loss mitigation activities may have on
our relationships with our customers and potential customers,
including the potential loss of current or future business and the
heightened risk of disputes and litigation;
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the need, in the event that we are unsuccessful in defending our loss
mitigation activities, to increase our loss reserves for, and reassume
risk on, rescinded or cancelled loans or denied claims, and to pay
additional claims, including amounts previously curtailed;
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any disruption in the servicing of mortgages covered by our insurance
policies, as well as poor servicer performance;
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adverse changes in the severity or frequency of losses associated with
certain products that we formerly offered (and which remain a small
part of our insured portfolio) that are riskier than traditional
mortgage insurance or financial guaranty insurance policies;
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a substantial decrease in the persistency rates of our mortgage
insurance policies, which has the effect of reducing our premium
income on our monthly premium policies and could decrease the
profitability of our mortgage insurance business;
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heightened competition for our mortgage insurance business from others
such as the Federal Housing Administration, the U.S. Department of
Veterans Affairs and other private mortgage insurers, including with
respect to other private mortgage insurers, those that have been
assigned higher ratings than we have, that may have access to greater
amounts of capital than we do, that are less dependent on capital
support from their subsidiaries than we are or that are new entrants
to the industry, and therefore, are not burdened by legacy obligations;
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changes in the charters or business practices of, or rules or
regulations applicable to, the GSEs;
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changes to the current system of housing finance, including the
possibility of a new system in which private mortgage insurers are not
required or their products are significantly limited in effect or
scope;
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the effect of the Dodd-Frank Act on the financial services industry in
general, and on our mortgage insurance and financial guaranty
businesses in particular, including whether and to what extent loans
with private mortgage insurance may be considered "qualified
residential mortgages" for purposes of the Dodd-Frank Act
securitization provisions;
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the application of existing federal or state laws and regulations, or
changes in these laws and regulations or the way they are interpreted,
including, without limitation: (i) the resolution of existing, or the
possibility of additional, lawsuits or investigations (including in
particular investigations and litigation relating to captive
reinsurance arrangements under the Real Estate Settlement Procedures
Act of 1974); (ii) changes to the Mortgage Guaranty Insurers Model Act
(the "Model Act") being considered by the National Association of
Insurance Commissioners ("NAIC") that could include more stringent
capital and other requirements for Radian Guaranty in states that
adopt the new Model Act in the future; and (iii) legislative and
regulatory changes (a) impacting the demand for private mortgage
insurance, (b) limiting or restricting the products we may offer or
increasing the amount of capital we are required to hold, (c)
affecting the form in which we execute credit protection, or (d)
otherwise impacting our existing businesses or future prospects;
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the amount and timing of potential payments or adjustments associated
with federal or other tax examinations, including adjustments proposed
by the Internal Revenue Service resulting from the examination of our
2000 through 2007 tax years, which we are currently contesting;
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the possibility that we may fail to estimate accurately the
likelihood, magnitude and timing of losses in connection with
establishing loss reserves for our mortgage insurance or financial
guaranty businesses, or to estimate accurately the fair value amounts
of derivative instruments in determining gains and losses on these
instruments;
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volatility in our earnings caused by changes in the fair value of our
assets and liabilities carried at fair value, including our derivative
instruments, substantially all of our investment portfolio and certain
of our long-term incentive compensation awards;
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our ability to realize some or all of the tax benefits associated with
our gross deferred tax assets, which will depend, in part, on our
ability to generate sufficient sustainable taxable income in future
periods;
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changes in accounting principles generally accepted in the United
States of America or statutory accounting principles, rules and
guidance, or their interpretation;
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legal and other limitations on amounts we may receive from our
subsidiaries as dividends or through our tax- and expense-sharing
arrangements with our subsidiaries; and
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our ability to fully realize the benefits anticipated from our recent
acquisition of Clayton Holdings LLC ("Clayton"), including: as a
result of a loss of customers and/or employees or the potential
inability to successfully incorporate Clayton's business into Radian
Group; and the potential distraction of management time and attention
in connection with the post-acquisition process.
For more information regarding these risks and uncertainties as well as
certain additional risks that we face, you should refer to the Risk
Factors detailed in Item 1A of Part I of our Annual Report on Form 10-K
for the year ended December 31, 2013 and in our subsequent reports and
registration statements filed from time to time with the U.S. Securities
and Exchange Commission. We caution you not to place undue reliance on
these forward-looking statements, which are current only as of the date
on which we issued this press release. We do not intend to, and we
disclaim any duty or obligation to, update or revise any forward-looking
statements to reflect new information or future events or for any other
reason.
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