Magazine article American Banker

Second-Lien Pool Noted as Radian Comes Up Short

Magazine article American Banker

Second-Lien Pool Noted as Radian Comes Up Short

Article excerpt

Radian Group Inc.'s third-quarter earnings fell short of expectations, in large part because claims surged on a pool of second-lien mortgages it insured whose servicer sold its platform.

During the quarter, the Philadelphia mortgage insurer and financial guarantor added $59 million to its loan-loss reserve, of which it attributed $28 million to the claims on the second-lien pool.

The company said that it was on the hook for half of that $28 million but that the other half was recoverable from the customer, which had reinsured it.

S.A. Ibrahim, Radian's chief executive, said in an interview that "sometime in the middle of the third quarter we saw an increase in claims that were submitted to us coincident with the announcement" that the customer in the seconds deal, which Radian entered in 2005, was going to quit the servicing business.

Just a coincidence? On a conference call, an analyst asked Mr. Ibrahim, the former chief executive of Greenpoint Mortgage, if it was true that "there is frequently an increase in delinquencies when servicing is transferred."

Mr. Ibrahim replied, "We do not want to presume anything at this point."

Bob Quint, the company's chief financial officer, said on the call that because of the coincidence, "we are looking at every claim to make sure that everything is appropriate before we pay it."

In the interview, Mr. Ibrahim said that under the deal, Radian has a first loss position but that "up to a certain point the losses are shared between us and the party we're insuring" -- hence the customer's responsibility for $14 million. …

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