-- Extended transition period of more than two
years to comply with PMIERs’ financial requirements --
-- Radian expects ability to comply within the
transition period without a need to raise external capital --
-- Company to address several aspects of draft
requirements during public comment period, including those that
could increase homebuyer costs and restrict credit access --
Radian 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
- approximately $800 million of currently
available liquidity;
- 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
- 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
homebuyers, 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:
- 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;
- 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;
- 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;
- our ability to maintain sufficient
holding company liquidity to meet our short- and long-term
liquidity needs;
- 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”);
- 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;
- 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;
- our ability to continue to effectively
mitigate our mortgage insurance and financial guaranty losses;
- 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;
- 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;
- 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;
- any disruption in the servicing of
mortgages covered by our insurance policies, as well as poor
servicer performance;
- 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;
- 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;
- 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;
- changes in the charters or business
practices of, or rules or regulations applicable to, the GSEs;
- 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;
- 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;
- 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;
- 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;
- 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;
- 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;
- 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;
- changes in accounting principles
generally accepted in the United States of America or statutory
accounting principles, rules and guidance, or their
interpretation;
- 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
- 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.
Radian Group Inc.Emily Riley,
215-231-1035emily.riley@radian.biz
Radian (NYSE:RDN)
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