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Radian Group Inc. Message Board

  • jdb_1234 jdb_1234 Nov 7, 2007 12:51 PM Flag

    Egan Jones

    Here is a link to a document produced by Egan-Jones that might be of interest

    http://www.egan-jones.com/Monoline_Credit_Insurers.doc

    My only concern has been that we are into a black swan event and losses are going to outstrip our imaginations.

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    • Move it up 10% -- move it down 10%. Reset; Rerun.

    • EJ says nothing that is not already known. his projections are a lot of words that speak little meaning realtive to reality as it has to do with Radian's level of risk. reality is that 90% of Radian's mortgage book is government sponsored debt (FannieMae, FreddieMac, FHA) and since Radian's level of risk is minimal relative to its major book of business, the market's reaction is overdone. not a single analyst on the Radian call asked a question in regards to the "other partner" of Radian, i.e., the federal government. but that's the fudsters. most of the analysts wanted to ask benign questions about default ratios in given areas of the country; California, Nevada and Florida. so what. they also asked how to effectively jump over a dollar to get to a penny. Radian's exposure on an individual mortgage default is maxed at aroud 20% of the total debt; their insurance doesn't cover an entire defaulted loan, the feds cover the majority of the default, private mortgage makes up the smallest portion. so, even if Radian's entire book defaulted tomorrow, Radian would still have nearly $1.2 billion in the bank. but, the entire book defaulting is as silly as red riding hood getting eaten - that means that even those with perfect credit would also default on their mortgage. one caller on the Radian quarterly conference call suggested that the mortgage industry was in a "depression"? oh really? so why is Radian's revenue, or their book of mortgage business increasing in a "depressed market"? why didn't the analysts on the call ask this question? what is actually happening is that mortgage insurers are now getting more mortgage insurance business since the sub-prime lenders have all but vanished. the only lenders left are the government backed lenders; it is these "government backed lenders" that Radian has 90% of their book of business with. so, if government backed lenders have increasing business, so will the mortgage insurers. MGIC said the same thing; their book of business is increasing. "Alt-A" does not mean "sub-prime" in the mortgage business. "Alt-A" simply means that Radian charges more premium for a borrower who has a lower credit score. "lower credit score" does always translate into higher risk or increased defaults. the mortgage insurers are no longer insuring 100% of the duplexes and fourplexes purchases...where many problems were generated. Radian's gross revenue is increasing relative to insuring more single family residence as refinances are increasing, and their risk is decreasing relative to the "Alt-A" loans they are taking on...due to tighter lending standards.

      requests for Refinancing are increasing (didn't anyone listen to the conference call of MGIC and RDN?) because every tom and dick that has an ARM wants to get out of it. having an ARM doesn't mean that the borrower is automatically at risk. at maximum 30% of the ARMS are at risk, and ARMS make up only 20% of all mortgage loans written. 30% of 20% is what the banks are writing off, and private mortgage insurers are covering the small portion of that debt management cycle.

      the major problem with the mortgage insurers is that they shot themselves in the foot...they charged TOO HIGH a PMI premium for lower risk loans (they were TOO greedy). and it is this high premium which in and of itself helped push several borrowers into default. this is also a problem they are trying to address through improved underwriting standards. yet, not a single analyst on the Radian or MGIC calls asked a question in this regard.

      and all this discussion says nothing about the credit side of Radian's business which made a profit during the quarter.

      • 1 Reply to capitalfud
      • <<one caller on the Radian quarterly conference call suggested that the mortgage industry was in a "depression"? >>

        I'm so glad you brought this up!

        The person who asked that question is a fund manager (and now hedge fund / private money manager) who I am familiar with. And for such an educated man (multiple degrees, including a PhD), I was absolutely stunned by how inarticulate (and frankly, just plain stupid) he was.

        Here's the kicker...he is *SHORT* the sector! Search the web, and you will find articles how he was performing poorly and went short the HB's and lenders et al and now had good recent performance.

        So is it any wonder he wants to try and drum up more fear?

        He used the term "great depression". What a fool.

        The USA (and the rest of the world) is going through a major INEVITABLE transition. A shift. Between the credit crisis, housing bubble, US dollar, oil, agri, etc. Many of the variables that remained within narrow ranges for decades are now being shaken up. The USA is now finally paying the piper for it's excessive and reckless behavior. Big deal. That's the way it always works. The world is changing. America does not dominate as it used to, and it's % of global GDP will continue to decrease going forward. But it is not the end of the world as we know it. Far from it. It is an adjustment. To use the term "depression" is insane. There will be economic consequences of this shift for the USA and the world. Duh! As Stephen Roach calls it, "global balancing". Tighter credit, increased savings, etc., will obviously have an impact both in the USA and in certain countries, mainly Asian (Japan especially). So what? It's not to be feared. It's to be understood, and then acted upon (i.e. modify your investment strategies).

        Things change. Wow! What a revelation! These "sky is falling" permabear doomsdayers annoy and amuse me.

        Go tell the Chinese how bad things are. lmao.

        There really is a whole big world outside of America. Who'd have thunk it? ;)

        If you're American, you'd better face the facts that investing in the S&P500 for the rest of your life is simply not going to cut it. Think global! Look at the wealthy, sophisticated investors - don't you see how they view the world? Don't you see how many of them have holdings all over the globe now? Well, us little guys have to do the same thing in order to do well over the coming decades.

    • Used to work in Finance, still keep in touch with others, believe me it is a three ring circus there now. Management is a joke. They never know from day to day where the axe is going to land next. No accountability at all.

    • Interesting. Care to explain? What was your role within the company?

    • fwiw - I don't think Ibrahim has a clue about the MI business. He came from Greenpoint Mortgage, which was sold for a good tag, but is now defunct...i am very unimpressed with his pep talks myself and the recent management changes leave something to be said...still going thru the latest results/prez so I will leave final comments for the future, but I was unimpressed with the Q&A too

    • I couldn't have said it better, as a former employee that place is going down hill and has been for months. The incompetence of management is mind boggling!!!

    • Yes, if you believed mngt, you would expect $59.96 BV by the end of 2010 (per 9/5 presentation). LOL. Since we are somewhat detached from that number, there is a bit of cushion to discount their statements. As far as new business is concerned, my expectations are that the broad market underwriting standards have tightened already, and, as you pointed out, its out of RDN hands.

    • Yep. It might be a black swan alright.

      One comment re: Egan-Jones.

      While many quite rightly point out that they are not like the monoplistic wh0re credit rating agencies who are frequently and ridiculously late to the game as well as beholden to those who pay their fees (the firms that they are rating) - which is a *HUGE* conflict of interest - there is a downside to their supposed impartiality as well.

      I don't feel like writing an essay on it, but just keep in mind that EVERYONE is biased and has an axe to grind, in one way or another.

    • interesting....just think what will happen to the muni market when these guys get downgraded....then the politicians will have some real fun! Its going to be a sh-tshow

 
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