Radian Group Is Losing Its Shine - Barron's

Includes: MTG, PMIR, RDN
by: Judy Weil

Investors pushed Radian Group's shares up last week on a chipper forecast and hopes that its troubles bottomed after: 1) It declared a total loss on its 46% stake ($518 million) in C-Bass, a joint subprime venture with MGIC Investment; 2) It admitted it would lose $340M on its highest risk Net Interest Margin subprime securities, $300M on its $1.1B second lien loan portfolio, and $2.2B on general mortgage insurance claims; 3) MGIC Investment retracted its buyout offer last week. Radian forecasted book-value growth of $4.8B ($59.96/share) by 2010, from $4.1B ($51.53) currently. Analysts like Bear Stearns see a $3.30/share loss in 2007, but insiders are buying and Third Avenue Funds upped its stake. Barron's doubts Radian's growth projection -- which depends upon flat housing prices. Many economists expect dramatic housing price declines, which could mean steep losses for the insurer. Radian also assumes that just 8.1% of its $41B Alt-A mortgages will result in claims losses. If rates actually climb beyond Radian's 18.2% subprime portfolio claims rate, that would add almost $500M in losses. Credit rating agencies have either downgraded or watchlisted many Radian products. Further cuts would curtail its ability to insure government-backed mortgages and impact trading conditions for its $110B financial guaranty portfolio. Barron's thinks investors should take MGIC's cue.

Sources: Barron's
Commentary: MGIC Investment and Radian Group Terminate $4.9B MergerEight Notes On Residential Real EstateNAR Cuts Housing Forecasts Again
Stocks/ETFs to watch: RDN, MTG. Competitors: PMI. ETFs: XHB, ITB

Radian 1-yr. chart:

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