Radian Group Inc. (RDN) advanced in New York trading after the mortgage insurer reached an agreement with Freddie Mac to cap expenses tied to loans held by the U.S.- controlled housing-finance company.
The agreement caps at $840 million Radian’s costs tied to 25,760 first-lien mortgage loans that Radian insured and that were delinquent as of Dec. 31, 2011, according to a statement yesterday. The accord will cost Radian about $20 million in the third quarter, which will be fully mitigated by lower losses in future periods, the company said.
The agreement “suggests that their reserves for this stuff were reasonably adequate,” Bose George, an analyst at Keefe Bruyette & Woods, said by phone. “If their reserve is adequate, that’s a huge positive, because I think everyone agrees that the outlook for these companies is very good.”
Radian paid Freddie Mac $255 million yesterday to cover claims on the loans, according to a regulatory filing today. The insurer also agreed to set aside $205 million to cover future payouts. Some of that money can be returned to Radian if the company successfully rescinds or denies coverage on loans.
Radian had previously paid $370 million to Freddie Mac on claims tied to the loans included in the agreement, the company said. Mortgage insurers cover losses when homeowners default and foreclosures fail to recoup costs.
The firms are rebounding as a resurgent U.S. real-estate market cushions losses on policies sold before the housing downturn. Radian and MGIC both raised capital in stock and bond sales this year.
The insurers may also benefit as the U.S. retools the mortgage-finance system. President Barack Obama said in a speech this month the government should play a smaller role covering soured home loans and that private capital should take more risk as Freddie Mac and Fannie Mae are wound down.