News

04/04/2013

Radian Announces Settlement Agreement with CFPB Related to Legacy Captive Reinsurance Arrangements

Settlement ends five-year federal investigation

PHILADELPHIA--(BUSINESS WIRE)--Apr. 4, 2013-- Radian Guaranty Inc., the mortgage insurance subsidiary of Radian Group Inc. (NYSE: RDN), today announced that it has reached a settlement agreement with the Consumer Financial Protection Bureau (CFPB) to resolve a previously disclosed federal investigation of the company’s participation in captive reinsurance arrangements. As part of this settlement, which was filed earlier today in the U.S. District Court for the Southern District of Florida, Radian agreed not to enter into new captive reinsurance arrangements for a period of ten years and to pay a civil penalty of $3.75 million.

Radian has not entered into any new captive reinsurance arrangements since 2007. In the past, Radian and other private mortgage insurers entered into captive arrangements pursuant to which affiliates of mortgage lenders reinsured a portion of the risk originated by the lenders (and insured by us) in return for a portion of the mortgage insurance premiums that would have been paid to us. Radian relied on long-standing, written guidance from the U.S. Department of Housing and Urban Development (HUD) in structuring these captive reinsurance agreements and on analyses and opinions of reputable actuarial firms that the terms of Radian’s reinsurance agreements met HUD’s standards. During the high-claim years that followed the most recent economic downturn, captive arrangements have proven to represent a critical component of the Company’s loss mitigation strategy, effectively serving as designed to protect our capital position during a period of stressed losses. As of December 31, 2012, we had received total cash reinsurance recoveries from these captive reinsurance arrangements of approximately $750 million.

Notwithstanding these facts, since 2008, HUD has been pursuing an investigation into the captive reinsurance arrangements of private mortgage insurers, including Radian, to determine whether these arrangements constituted an unlawful payment under the federal Real Estate Settlement Procedures Act (RESPA). This investigation was transferred to the CFPB in 2011 by the enactment of the Dodd-Frank legislation. The settlement agreement announced today, which remains subject to Court approval, will conclude the CFPB’s investigation with respect to Radian without the CFPB making any findings of wrongdoing in its investigation or in the settlement.

“We are pleased to put this behind us,” stated Teresa Bryce Bazemore, president of Radian Guaranty. “While we believe our captive arrangements complied with RESPA and caused no harm to consumers, this settlement was an opportunity to eliminate distractions at an acceptable cost so that we can continue our primary focus of writing new, profitable mortgage insurance and helping low down-payment borrowers realize the dream of homeownership,” Ms. Bazemore said.

As previously disclosed, we and other mortgage insurers remain subject to an investigation by the Minnesota Department of Commerce relating to our captive reinsurance arrangements, and we are currently facing private lawsuits alleging, among other things, that our captive reinsurance arrangements constitute unlawful payments to mortgage lenders under RESPA. We intend to vigorously defend the company in this investigation and against these claims.

About Radian

Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia, provides private mortgage insurance and related risk mitigation products and services to mortgage lenders nationwide through its principal operating subsidiary, Radian Guaranty Inc. These services help promote and preserve homeownership opportunities for homebuyers, while protecting lenders from default-related losses on residential first mortgages and facilitating the sale of low-downpayment mortgages in the secondary market. Additional information may be found at www.radian.com.

Forward-looking Statements

Some of the statements in this press release may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities and Exchange Act of 1934 and the United States Private Securities Litigation Reform Act of 1995. Words such as "will," "expects," "believes" and similar expressions are used to identify these forward-looking statements. These forward-looking statements, which may include without limitation, projections regarding our future performance and financial condition, are made on the basis of management’s current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking statement. The forward-looking statements, as well as our prospects as a whole, are subject to risks and uncertainties, including, without limitation, the possibility that our settlement agreement with the CFPB may not receive court approval and that we may be unable to successfully defend our remaining outstanding, and any potential future, investigations and litigation relating to captive reinsurance arrangements under RESPA. Any forward-looking statements speak only as of the date they were made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We operate in a changing environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2012 and subsequent reports and registration statements filed from time to time with the Securities and Exchange Commission.

Source: Radian Group Inc.

Radian Group Inc.
Emily Riley, 215.231.1035
email: emily.riley@radian.com