Radian Guaranty Inc. is sponsoring its third transaction of notes linked to mortgage insurance contracts it underwrote lenders for GSE-conforming loans for most of the past year.
Eagle Re 2020-1 is a $646.3 million mortgage in insurance-linked notes offering backed by the performance of a reference pool of 156,065 loans with an outstanding balance of $40 billion. Radian has guaranteed $9.9 billion of the loans, representing the portion of the loan pool not covered by Fannie Mae or Freddie Mac guarantees.
Radian provides insurance for homeowners who want to quality for a mortgage insured by Fannie or Freddie but cannot afford to make a 20% down payment. So if a borrower puts down 5%, Radian reimburses the government-sponsored enterprises for any losses between 5% and 20%, for example.
Holders of the floating-rate notes are paid interest through both Radian’s premium payments, as well as investment earnings on the issuer’s eligible investment earnings (investments are restricted to AAA-rated or U.S. Treasury money-market funds and securities).
Noteholders will receive principal with the liquidation of eligible investments, which will also be used to make loss payments when claims are made on the underlying policies – so investors bear losses from those claims.
Nearly all of the loans (96.9% of the underlying insured mortgage loans) conform to Freddie and Fannie underwriting guidelines and have high-quality credit attributes (87% of the loans were taken out by borrowers with FICO scores in excess of 700, and 52.8% of the loans have borrower credit scores of 750 or higher).
The insurance linked notes include $83.9 million of Class M-1A losses with provision BBB (low) ratings from DBRS Morningstar – representing the lowest-risk notes with the highest level of credit enhancement level of 7%.
