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Clayton provides outsourced services such as loan reviews and due diligence for mortgage-backed securities deals—demand for which would presumably pick up if private issuance takes off again. S.A. Ibrahim, Radian's chief executive, figures it's only a matter of time before that rebound happens.
"Banks will try and relieve capital pressure" by turning to private label securitizations of loans held in their portfolios, Ibrahim said Wednesday on a conference call with investors and analysts. This is one of the reasons Radian believes the
Even with fewer or smaller deals, quality control should be in hot demand as memories of the mortgage crisis linger, Radian reckons. Clayton, after all, is the firm whose former president revealed
The new pools are likely to have due diligence requirements that are "much more extensive, where a much larger number of loans, whether it's 100% or something just less than that, have to be reviewed in order for a deal to go forward," said Teresa Bryce Bazemore, the president of Radian Guaranty, the company's flagship mortgage insurance unit. "So we think that the securitization market doesn't have to get back to the levels that it had been before in order for Clayton to benefit."
The deal comes as Radian faces a new competitive landscape in its core business. Over the past few years, the Philadelphia mortgage insurer has been aggressive in adding new lender customers. It finished
But since the crisis Essent (which is now a close fifth in new insurance written behind legacy insurer Genworth), National MI and Arch US MI have entered the fray.
"We did see some shift in the market share from the third quarter of last year until now. That's one of the reasons why we continue to be very focused on bringing on new customers," Bazemore said.
Adding Clayton is "another way that we differentiate ourselves from our mortgage insurance competitors," Ibrahim said. Radian is "positioning ourselves for what we believe is the next opportunity in the future of the housing finance system in an area where we have already started doing things, to a small extent, on our own."
Clayton, based in Shelton, Conn., also offers servicing surveillance and foreclosed-property services, which would provide additional revenue streams to complement Radian's core private mortgage insurance business.
"While the significant upside opportunities from the acquisition depend on many things, including the growth of the private securitization market, Clayton is already a strong and successful company on a standalone basis," Ibrahim said.
