Radian Guaranty is seeking waivers in 12 states of risk-to-capital requirements, even though it does have $600 million in capital at the parent company level available to downstream to the mortgage insurer, chief financial officer Bob Quint said during a presentation at the FBR Capital Markets Fall Investor Conference.
The strategy, he said, is to preserve liquidity at the holding company level. So far, three states —Illinois, Kentucky and Wisconsin — have approved the waiver, while one state rejected the request.
Radian, he said, is looking to other alternatives, including reinsurance, to improve its risk-to-capital position, which at the end of the third quarter was 21.4-to-1.
But, Quint noted, there was event in the fourth quarter, where there was an interest shortfall on $451 million of CDOs insured in the financial guaranty unit, which if it took place in the third quarter, would have boosted the risk-to-capital ratio to 24.2-to-1.
The CDOs are mostly backed by MBS. The shortfall will have a statutory capital impact of between $88 million and $109 million in the fourth quarter. But it is not expected to impact Radian's GAAP fair value significantly in the fourth quarter, Quint said.
In the good news portion of his presentation, Quint said Radian Guaranty should have over $5 billion of new insurance written in the fourth quarter, up from $4.1 billion in the third.
The company's, as well as the industry's efforts to gain market share from the Federal Housing Administration (FHA) are paying off. The private mortgage insurers saw their market share versus FHA go up seven percentage points between the second and third quarters to nearly 32%.
However, the recent increase in FHA loan limits passed by Congress is likely to be a negative for the private mortgage insurers.
Given that Radian uses risk-based pricing and FHA doesn't, it is at credit scores above 720 where private mortgage insurance is the most effective execution on low-down payment loans.
But, he said, between 680 and 720, because of loan level pricing adjustments from Fannie Mae and Freddie Mac, private mortgage insurance is not priced competitively compared to FHA.
Radian, he added, is benefiting from two of its competitors, PMI Mortgage Insurance and Republic Mortgage Insurance Co., exiting the business.
Changes to the HARP program could also benefit Radian. Over half of its current loan portfolio is eligible, Quint said, and if there were "meaningful participation" from borrowers, this would likely improve Radian's capital position.
Bank of America, the nation's largest servicer, also is subject to the Office of the Comptroller of the Currency's foreclosure review. BofA has retained Promontory Financial Group as its independent consultant in the matter.
