Radian Comes Up with Mixed November Results, Shares Fall - Analyst Blog

Radian Group Inc.'s (RDN) operating statistics for the month of Nov 2014 revealed a decline in primary new insurance. The release, after the market close on Dec 9, prompted a nearly 3.4% fall in the company's share price on Dec 10.

 

Radian's primary new insurance written for Nov 2014 was $2.87 billion, down 4.3% year over year and down 23.4% sequentially. 

 

Delinquency loans (loans which have failed to pay back) at Radian, however, improved consistently. Delinquent inventory for the month under review was 45,908, down 26.6% year over year and 0.7% sequentially. 

 

The company which was devastated by the 2008 financial crisis is crawling back. Its fortunes have been helped by declining delinquencies and improving cure rates on claims from its legacy business. The prospects of the company also look bright on its growing book of high-credit-quality business written since 2009.

 

The combined impact of an improving economy and Radian's continued focus on loss mitigation in its mortgage insurance portfolio led to a year-over-year decline in total number of primary delinquent loans of 35% from 2012 to 2013. 

 

We expect Radian to gain from improving market conditions characterized by larger origination volume and gain in the private mortgage insurance industry's market share, along with a rebound in the housing market. 

 

Management at Radian is encouraged by growing demand for home purchases. Moreover, as the majority of purchases involving mortgage do not have 20% down payment, the company expects to benefit from this opportunity.

 

After suffering losses for the past six years due to the subprime crisis, the industry is now on its recovery path. The transformed market structure, with characteristics such as better credit quality of loans that are being insured now, wipe out pre-crisis mortgages from the portfolio. The possibility of a decrease in Federal Housing Administration's share of the mortgage insurance market may also encourage new entrants. 

 

Until 2010, the mortgage insurance industry faced a prolonged dearth of new entrants. A resurgent U.S. mortgage insurance market has, however, attracted new players. In 2010, Essent Guaranty, Inc. (ESNT) entered the mortgage insurance industry and filed for an IPO last year after its business showed rapid growth. 

 

Another player, Arch Capital Group Ltd. (ACGL) acquired CMG Mortgage Insurance Company. The acquisition has given Arch Capital the license to provide mortgage insurance nationwide.

 

Radian currently carries a Zacks Rank #2 (Buy). Its peer, MGIC Investment (MGIC) with Zacks Rank #1 (Strong Buy), is also worth considering.