Radian Group Inc.’s mortgage insurer reached an agreement with Freddie Mac that caps expenses at $840 million related to loans held by the U.S. government-controlled housing-finance company.
The accord covers more than 25,000 first-lien mortgage loans that Radian insured and were delinquent as of Dec. 31, 2011, the Philadelphia-based company said today in a statement. The insurer expects to incur a loss of about $20 million in the third quarter related to the deal. That will be fully mitigated by lower losses in future periods, the company said.
“This agreement is an important step in resolving our remaining legacy risk, and reduces our total number of primary delinquent loans,” Chief Executive Officer S.A. Ibrahim said in the statement.
Mortgage insurers that saw claims rise during the housing crash are rebounding as a resurgent U.S. real-estate market cushions losses on policies sold before the downturn. Radian and competitor MGIC Investment Corp.’s shares have more than doubled this year, and both companies have raised capital in stock and bond sales.
The insurers may also benefit as the U.S. government retools the mortgage-finance system. President Barack Obama is pushing for the country to scale back from its role in covering losses when home loans sour. He called for private capital to take more of the risk in a speech this month, as Freddie Mac and Fannie Mae are wound down.
Radian said the deal announced today will eliminate obligations on about 9,800 loans that were delinquent and about 4,600 that were performing again as of July 31. Mortgage insurers cover losses when homeowners default and foreclosures fail to recoup costs.
Radian has paid about $255 million to Freddie Mac to cover claim exposure on the loans, and had previously incurred $370 million of claims, according to the statement. The business also deposited $205 million in a collateral account to cover loss-mitigation activity.