Despite Drop in Delinquencies, Radian Reports Wider Losses

Radian Group (RDN) reported a net Q110 loss of $310.4m, widened significantly from $91.9m in the previous quarter and $217.4m in the year-ago quarter. The news — which sent Radian stock down 10% in early-morning trading — comes after the company’s mortgage insurance business experienced the first drop in mortgage delinquencies in almost four years. After the wide losses, Radian is already planning capital-raising efforts to boost its mortgage insurance unit, Radian Guaranty. Provision for losses in the company’s mortgage insurance business grew to $529.1m in Q110 — including an increase in reserves of $146.5m to $3.6bn. The increase in reserves, along with fewer delinquencies, boosts Radian’s reserve per delinquency for both primary and pool loans. The number of primary and pool mortgage delinquencies fell by a respective 5.3% and 6.8% since the previous quarter. These decreases included mortgage insurance terminations that reduced Radian’s primary delinquency count by 4,429 mortgages. “The strength of our core mortgage insurance business remains the top priority at Radian,” said CEO S.A. Ibrahim, in a statement. “We are encouraged by the decline in our delinquency count this quarter, the first in nearly four years.” Radian paid $357.3m in total mortgage insurance claims in Q110, and expects approximately $1.5bn in paid claims for all of 2010. Radian wrote $1.9bn of new mortgage insurance in the quarter — a 21% market share, according to the press statement. Radian Guaranty is already raising capital for reporting in future earnings statements. Radian said today it sold its remaining equity interest in consumer asset and servicing firm Sherman Financial on Monday for $172m in cash. The expected $70m pre-tax gain on the sale will not be reflected until the Q210 earnings report. Radian is also launching a public offering of up to $550m of its common stock, and plans to use the net proceeds in part to boost capital at its mortgage insurance unit. The underwriters have a 30-day option to purchase up to an additional 15% — or $82.5m — of common stock to cover any over-allotments. Keefe, Bruyette & Woods and Morgan Stanley (MS) act as joint book-running managers, according to a statement. FBR Capital Markets, Wells Fargo Securities and Northland Securities act as co-managers on the offering. Write to Diana Golobay. Disclosure: the author holds no relevant investment positions.

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