Radian Sees Business Revival with Housing Market Recovery
On Nov 18, we initiated coverage on the shares of private mortgage insurer Radian Group Inc. (RDN). For more than 35 years, the company has been supporting homebuyers, mortgage lenders, loan servicers and investors through a suite of private mortgage insurance and related risk management products and services.
The housing crash and its resultant financial crisis which started in 2007 left the private mortgage insurer crippled and paying out billions of dollars in claims to homeowners having defaulted. With increased delinquency, high claims were mostly seen in the company’s earnings from 2007–2012.
However, a recovery in the housing market has helped Radian attract new and profitable business, giving it some respite from the losses that it had been posting since 2008.
Strong new business volume in 2013 helped Radian to end 2013 as the nation’s largest private mortgage insurance company with $161 billion of insurance in force, up 15% year over year.
Radian is also witnessing an improvement in the quality and size of mortgage insurance in force, which is expected to create a strong foundation for future earnings.
The company is also witnessing declining delinquency (delinquency triggers claims), led by the impact of an improving economy and the company’s continued focus on loss mitigation in its mortgage insurance portfolio.
Radian is seeking to diversify its business and acquired Clayton Holdings in Jun 2014. The buyout will generate fee-based revenues for Radian and also broaden its participation in the residential mortgage market value chain, with services that complement its Mortgage Insurance business.
Nevertheless, the recent increase in mortgage insurance rates, below the mark financial strength ratings and stricter capital regulations, are some of the near term headwinds.
Radian carries a Zacks Rank #2 (Buy). Other companies in the same industry that are worth considering include American International Group, Inc. (AIG), Assured Guaranty Ltd. (AGO) and Enstar Group Ltd. (ESGR). All these stocks carry the same Zacks Rank as Radian.
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