Third and largest transaction of its kind helps Radian improve risk profile,
protect downside
PHILADELPHIA, Jan. 4 /PRNewswire-FirstCall/ -- Radian Guaranty, a provider
of mortgage insurance products and services and subsidiary of global credit
enhancement provider Radian Group Inc. (NYSE: RDN), announced that it has
completed its third and largest Smart Home transaction to help in managing the
company's exposure to non-prime mortgage risk. Smart Home transactions, which
were first developed by Radian in 2004, allow the company to distribute
mortgage risk to the capital markets, thereby improving Radian's risk profile
and facilitating its insurance of loans in the non-prime market.
In order to mitigate the risk of unexpected losses associated with a
$6.27 billion non-prime pool of mortgages, Radian ceded a portion of the pool
to an unaffiliated reinsurance company that in turn sold $172.9 million of
credit-linked notes to investors in the capital markets. These notes are
backed by the $6.27 billion pool of Radian-insured non-prime mortgage loans.
The performance of these notes is linked to the credit and prepayment
performance of the underlying pool of mortgages.
"The Smart Home transaction reflects Radian's continued innovative
strategy toward obtaining and managing mortgage risk," said Mark Casale,
executive vice president - mortgage insurance for Radian Guaranty. "Obtaining
reinsurance from Smart Home requires that we give up some premium, but in
return we receive coverage that is strong and stable."
Suzanne Hammett, chief risk officer and executive vice president for
Radian Group noted, "While the non-prime segment of the mortgage insurance
market is profitable, it demands a disciplined approach to risk management.
Radian has been able to demonstrate one way in which companies can effectively
approach risk management in this market."
The most recent Smart Home transaction is the third of its kind for
Radian: in August 2004, Radian ceded a portion of risk associated with a $882
million portfolio of first-lien, non-prime residential mortgages. In February
2005, Radian ceded an additional portion of non-prime risk associated with a
$1.68 billion pool of non-prime mortgages.
The reinsurers in these transactions issued $86.1 million (August 2004)
and $98.5 million (February 2005) in credit linked notes.
About Radian Guaranty Inc.
Radian Guaranty Inc. is the mortgage insurance subsidiary of Radian Group
Inc. (NYSE: RDN), a global credit enhancement company headquartered in
Philadelphia. Radian Guaranty provides risk management products and services
to mortgage lenders nationwide; these services increase opportunities for
people to buy homes with little or no downpayment, protect lenders from
default-related losses on residential first mortgages and facilitate the sale
of low-downpayment mortgages in the secondary market. Additional information
may be found at http://www.radian.biz.
All statements made in this press release that address events or
developments 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 U.S. Private Securities Litigation Reform Act of 1995. These statements
are made on the basis of management's current views and assumptions with
respect to future events. The forward-looking statements, as well as Radian's
prospects as a whole, are subject to risks and uncertainties, including the
following: changes in general financial and political conditions such as
extended national or regional economic recessions (or expansions), changes in
housing values, population trends and changes in household formation patterns,
changes in unemployment rates, changes or volatility in interest rates, or
other political instability; changes in investor perception of the strength of
private mortgage insurers or financial guaranty providers, and risks faced by
the businesses, municipalities or pools of assets covered by Radian's
insurance; the loss of a customer with whom Radian has a concentration of its
insurance in force; rising delinquencies in mortgage loans insured by Radian
resulting from increased consolidation of mortgage lenders and servicers;
increased severity or frequency of losses associated with certain Radian
products that are riskier than traditional mortgage insurance and municipal
guaranty insurance policies; material changes in persistency rates of Radian's
mortgage insurance policies; downgrades of the insurance financial-strength
ratings assigned by the major ratings agencies to Radian's operating
subsidiaries; heightened competition from other insurance providers and from
alternative products to private mortgage insurance and financial guaranty
insurance; changes in the business practices of Fannie Mae and Freddie Mac;
the application of existing federal or state consumer lending, insurance and
other applicable laws and regulations, or unfavorable changes in these laws
and regulations or the way they are interpreted or applied, including: (i) the
possibility of private lawsuits or investigations by state insurance
departments and state attorneys general alleging that services offered by the
mortgage insurance industry, such as captive reinsurance, pool insurance and
contract underwriting, are violative of the Real Estate Settlement Procedures
Act and/or similar state regulations (particularly in light of public reports
that some state insurance departments may review or investigate captive
reinsurance arrangements used in the mortgage insurance industry), (ii) the
outcome of private lawsuits that have been brought against us or that may be
brought against us and other mortgage insurers under the Fair Credit Reporting
Act, or (iii) legislative and regulatory changes affecting demand for private
mortgage insurance or financial guaranty insurance; 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 financial guaranty contracts in determining gains and losses on
these contracts; changes in accounting guidance from the SEC or the Financial
Accounting Standards Board regarding income recognition and the treatment of
loss reserves in the mortgage insurance or financial guaranty industries;
changes in claims against mortgage insurance products resulting from the aging
of Radian's mortgage insurance policies; vulnerability to the performance of
Radian's strategic investments; international expansion of our mortgage
insurance and financial guaranty businesses into new markets and risks
associated with our international business activities; and the loss of
executive officers or other key personnel. Investors are also directed to
other risks discussed in documents filed by Radian with the SEC, including the
factors detailed in our annual report on Form 10-K for the year ended December
31, 2004 in the section immediately preceding Part I of the report. We
caution you not to place undue reliance on these forward-looking statements,
which are current only as of the date of this press release. Radian does not
intend to and disclaims any duty or obligation to update or revise any
forward-looking statements made in this press release to reflect new
information, future events or for any other reason.
SOURCE Radian Guaranty Inc.
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Related links:
http://www.radian.biz
CONTACT:
For investors - Mona Zeehandelaar,
+1-215-231-1674, mona.zeehandelaar@radian.biz; For the media -
Corporate Communications, +1-888-NEWS-520, media@radian.biz, both
of Radian Guaranty Inc.
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