""Radian Guaranty Inc."":http://www.radian.biz, the mortgage insurance subsidiary of Radian Group Inc., has entered into a master transaction agreement with ""Freddie Mac"":http://www.freddiemac.com which the company says eliminates its claim exposure on 9,756 delinquent mortgage loans and 4,586 re-performing loans.[IMAGE]
The agreement involves 25,760 first-lien mortgages held by Freddie Mac that were insured by Philadelphia-based Radian Guaranty and were delinquent as of December 31, 2011. The agreement provides for the future treatment of these loans including claim payments, loss mitigation activity, and insurance coverage and caps Radian Guaranty's total exposure on this group of loans, including loans that are currently re-performing, at $840 million.
""One of our top priorities for our mortgage insurance business is to actively reduce our legacy exposure,"" said Radian's CEO S.A. Ibrahim. ""This agreement is an important step in resolving our remaining legacy risk.""[COLUMN_BREAK]
According to Ibrahim, the arrangement with the GSE reduces Radian's total number of primary delinquent loans by 12.6 percent.
Radian Guaranty paid approximately $255 million to Freddie Mac to cover claim exposure on these loans-that's in addition to the $370 million of claims Radian had previously paid on these loans. The mortgage insurer also deposited $205 million in a collateral account to cover loss mitigation activity on the loans in question. Funds in the collateral account will be released to Radian Guaranty to the extent the company rescinds, denies, or curtails these loans and the amounts become final under the agreement.
As of July 31, the amount of insurance rescissions, claim denials, or claim curtailments that had become final in accordance with the agreement was approximately $10 million. In addition, at the end of July, another $140 million of submitted claims had been rescinded, denied, or curtailed but were not considered final under the agreement. If the loss mitigation activities do not accumulate to $205 million, any remaining funds will be paid to Freddie Mac.
Radian expects to record an incurred loss of approximately $20 million in the third quarter in connection with the transaction, but the company says that will be fully offset by the resulting reduction of incurred losses in future periods from the elimination of exposure to re-performing loans covered by the transaction that may redefault and ultimately become claims.