Radian Group Inc (RDN) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Radian's fourth-quarter 2009 earnings call. For the conference today all the participants are in a listen-only mode. However, there will be an opportunity for your questions and instructions will be given at that time. (Operator Instructions). And as a reminder, today's call is being recorded. With that being said, I'll turn the conference now to Miss Emily Riley. Please go ahead.

Thank you. Welcome to Radian's fourth-quarter 2009 conference call. Our press release, which contains Radian's financial results for the quarter, was issued earlier today and is now posted to the investor section of our website at www.Radian.biz.

During today's call you will hear from S.A. Ibrahim, Radian's Chief Executive Officer, and Bob Quint, Chief Financial Officer. Also on hand for the Q&A portion of the call are Teresa Bryce, President of Radian Guaranty; Dave Beidler, President of Radian Asset Assurance; and Scott Theobald, Executive Vice President and Chief Risk Officer of Radian Guaranty.

Before we begin I would like to remind you that comments made during this call will include forward-looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially.

For a discussion of these risks, please review the cautionary statements regarding forward-looking statements included in our earnings release and the risk factors included in our third-quarter 2009 Form 10-Q. These are also available on our website. Now I would like to turn the call over to S.A.

Thank you, Emily. And thank you all for joining us. In our first-quarter earnings call in 2009 I outlined several priorities that were critical to Radian's success. Today I'm pleased to report on our progress and to review the actions we took to achieve our goals in the face of many challenges.

My remarks today will focus on the significant progress made as well as our priorities going forward. But first I will begin with a few highlights of our fourth-quarter and year-end performance. After my comments Bob will cover the details of our financial position. Then before we open the call to your questions I will summarize our accomplishments in 2009 and our priorities for 2010.

Earlier today we reported a fourth-quarter net loss of $91.9 million or $1.12 per share. The net loss for the full year 2009 was 147.9 million or $1.80 per share. While these results clearly reflect a challenging business and macroeconomic environment, it is worth noting that our performance was better than we expected and there were signs of improvement in our core mortgage insurance business.

For example, for those familiar with the seasonal trends affecting mortgage insurance, the fourth quarter is typically the weakest with the largest increase in delinquencies. In the fourth quarter of 2009, however, we experienced a lower rate of new delinquencies which is clearly encouraging.

We're also encouraged by a delinquency report released by the Mortgage Bankers Association last week where the MBA's Chief Economist, Jay Brinkmann, noted that mortgage delinquency rates had dropped from the third quarter to the fourth quarter of 2009. This has only happened three times in the nearly 40-year history of the MBA survey.

You can see the details of Radian's new default and other data on our new default roll forward chart on slide 16 of our webcast presentation. Now I'd like to highlight Radian's progress on our key priority areas for 2009.

First, we believe that we have successfully eliminated any potential gap in near-term liquidity. At the beginning of 2009 we had a combination of bank lines and public debt maturing in 2011 that totaled $350 million as well as intercompany tax obligations. We now project sufficient liquidity to satisfy all of our obligations in 2011 and project excess liquidity through 2012.

This was the result of a lower than estimated intercompany tax payment in 2010 due to better than expected 2009 results as well as a number of proactive strategies including buying back debt at a discount, transferring the equity interest in our Sherman financial subsidiary to Radian Guaranty and the CPS tender announced late last year.

Next, the risk to capital ratio for Radian Guaranty was 15.4 to 1 on December 31, 2009, among the lowest in the industry. This compares to a ratio of 16.1 to 1 in the third quarter and 16.4 to 1 a year ago. This improved ratio was favorably impacted by our success in [commuting] non-core risk exposure, and Bob will provide more details on these transactions in his remarks.

Additionally, we made progress in preparing our 50 state licensed mortgage insurance subsidiary, Amerin Guaranty, to write new business in the unexpected event that it becomes necessary in the future. As a result we now expect to continue writing high-quality mortgage insurance business uninterrupted for the foreseeable future.

Third, our mortgage insurance franchise remains strong and we are in a competitive position to take advantage of any future increase in MI penetration. As I mentioned in previous calls, we took several actions over the past two years to strengthen our franchise and to create a well-balanced mix of customers.

Fourth, we utilized our Financial Guaranty business as a source of capital and successfully continue to mitigate and commute credit risk in both our Financial Guaranty and mortgage insurance businesses. Our success in this area is reinforced by our demonstrated ability to pay ordinary dividends of approximately $100 million in both 2008 and 2009 from Radian Asset and by the New York Insurance Department granting approval for Radian Asset to release $143 million in contingency reserves.

As a result of our actions we were able to reduce our risk in force significantly and ultimately improve our MI risk to capital ratio throughout 2009. We expect Radian Asset to pay another ordinary dividend to Radian Guaranty in June 2010 of approximately $70 million.

And finally, we have been successful at Radian in retaining and attracting talented employees throughout the stressful economic downturn. We continue to strengthen our team and I'm pleased to announce that Bob Griffith has joined us as Executive Vice President and Chief Operating Officer for Radian Guaranty. This position reports directly to Teresa Bryce, the President of Radian Guaranty.

Bob is well known in the mortgage industry with more than 20 years of experience in mortgage banking. Most recently Bob was responsible for Bank of America's extensive nationwide network of loan fulfillment centers. Earlier in his career he was President and Chief Executive Officer for Irwin Mortgage.

Bob has served as Director of the Mortgage Bankers Association and as Chairman of its residential Board of Governors. He has been a member of both the Fannie Mae National Advisory Council and the Housing Policy Council of the Financial Services Roundtable.

Turning to a few additional details on our mortgage insurance business. Our mortgage insurance loss provision grew again in the quarter due to rising delinquencies and the aging of existing loans in our default inventory. However, reduced volatility in the market and the slowing of the new delinquencies in the fourth quarter lead us to anticipate the stabilization of delinquencies throughout 2010 and a decreased count by year end.

Importantly, you can see on slide 14, and also on the new slide 15, that loans originated in the second half of 2008 and in 2009 continued to experience a lower number of early defaults. As I mentioned earlier, we have been successful in executing our strategy of reducing non-core risk. In the quarter we completed a series of transactions that reduced our risk in force in pool and modified pool insurance as well as NIMS, second lien, international mortgage risk and Financial Guaranty CDS. Bob, again, will provide more details on these transactions and their impact.

Also, we continue to benefit from our proactive loss management efforts and you will find our fourth-quarter rescission rates for MI on slide 9 of our webcast presentation.

Attention to the government's homeowner affordability and stability programs, HAMP and HARP, have shifted in recent months from the initial statistics on trial modifications to a new focus on permanent modifications. While it continues to be difficult to gather complete data on these programs from various customers and servicers, we believe that approximately 1.2 billion of previously written insurance is included in the HARP program.

Additionally, more than 27,000 delinquent loans carrying Radian insurance have been placed in a HAMP trial period to date. While only about 1,750 of those modifications have been completed, we are encouraged by the recent statistics from the Treasury Department on the success of the program and the increase in HAMP modifications transitioning to permanent status.

And the administration, in a continued focus on the housing recovery effort, recently announced a new plan to designate $1.5 billion from the Emergency Economic Stabilization Act in the states hardest hit by home price declines and unemployment.

Our new $2.4 billion in new mortgage insurance written in the quarter was clearly impacted by reduced mortgage origination volume and lower mortgage insurance penetration. However, once again this new business consisted of loans with excellent risk characteristics with 99.9% prime credit quality and 76% with FICO scores of 740 or above. We are focused on writing as much of this high-quality mortgage insurance business as possible and are concentrating our efforts on attracting new customers and reinforcing the value of our product.

Finally, it is important to recognize three additional examples of Radian's strength in our results. First, Radian's book value at December 31, 2009 was $24.22 per share. Second, we believe that our existing book of business as of year end 2009 contains embedded value of $1.3 billion on our first lien domestic portfolio as a shown on slide 12. And third, our investment portfolio remains strong at $6.2 billion.

Now I'd like to turn the call over to Bob for details of our financial position. Then I will follow with a few comments before opening the call to your questions. Bob?

Thank you, S.A. I'll be updating you on our P&L activity and trends for the fourth quarter of 2009 and our year-end financial position. Our MI provision for losses of $459.9 million this quarter reflects the continued aging of delinquencies; increased severity and higher delinquency count albeit at a slower pace than previous quarters and at a significantly lower level than we had anticipated.

The fourth quarter is typically the worst quarter seasonally and, although incurred losses were higher in the fourth quarter than the previous quarters of 2009, we had expected much higher. In contrast the first quarter is usually the best quarter seasonally.

There was a slight reduction in our rescission and denial rate estimates this quarter as compared to the first three quarters of 2009 when these estimates rose. The dollar amount of denials and rescissions for the fourth quarter of 2009 rose to approximately $350 million compared to $300 million in the third quarter and was approximately $1.3 billion for the year 2009.

These figures include significant amount for loans and deals with remaining deductibles for which a claim would not have actually been paid. So in effect our rescissions and denials preserve the subordination in front of our position.

Our claims paid for the quarter consisted of $239 million of first liens and $15 million of second liens. We also made a $198 million termination payment for a large group of modified pool and pooled structured transactions and we received $25 million of recoveries from trust accounts of terminated captive reinsurance agreements. We expect that total claims paid will be approximately $1.5 billion for 2010 as a result of an anticipated increase in foreclosures working their way through the system.

We completed a series of MI transactions during the quarter that are consistent with our strategy of reducing non-core exposure on favorable economic terms. They are as follows -- we terminated $237 million of modified pool risk in force, which was included in our primary statistics, and $30 million of pool risk in force. This produced a GAAP and stat capital benefit and reduced our primary delinquency count by 12,575 and our pool delinquency count by 2,311, which you can see on disclosure exhibit S to our press release.

Without this transaction our total delinquency count during the quarter would have been up by 7.6% which is significantly less than we were anticipating. We also bought approximately $64 million of NIM bonds for a purchase price of $49 million which produced a small statutory capital benefit and had minimal GAAP impact as the purchase price approximated fair value. We have continued to buy NIM bonds at a discount in January.

Also in January we settled with our counterparty on approximately $21 million of fully reserved second lien risk in force for a settlement price that produced a small GAAP and stat benefit. And finally, for a small price we terminated our large international CDS which eliminated over $3 billion of exposure.

Second lien risk in force has been reduced to $263 million as of December 31, 2009 and was further reduced in January. The loss reserve and premium deficiency reserve for second liens at 12-31-09 is approximately $69 million, or 26% of the risk, and we believe any uncertainty around the performance of second liens, NIMS and CDS, what we collectively include in our other MI risk in force, has been substantially reduced. This other mortgage insurance risk in force has gone down significantly from $5.1 billion as of December 31, 2008 to $1 billion as of December 31, 2009.

In Financial Guaranty we experienced a general moderation of credit trends this quarter, although the trends were clearly negative for the year. With regard to the one problem CDO of ABS transaction, we still believe that based on current expected cash flows, which are very volatile, we will not be required to pay principal until 2036 or later and that the ultimate principal payment will likely be a significant portion of our total par exposure of approximately $466 million.

However, we expect to begin paying claims for interest advances sometime this year. At such time we would be required to post a statutory loss reserve for the present value of future losses which would be probability weighted based on a series of potential outcomes and would negatively impact Radian Asset and thus, Radian Guaranty's statutory capital.

The asset class that has deteriorated most in 2009 is our TruP CDOs which contain underlying collateral that consist mostly of trust preferred securities issued by regional and community banks. In October our worst performing TruPs transaction with a total par exposure of approximately $212 million defaulted due primarily to an abnormally high amount of interest deferrals by banks.

While the GAAP impact had been booked through the fair value line throughout 2009, the pretax statutory loss expense for this exposure was $63 million which was booked in the fourth quarter and compares to the $50 million to $90 million that we had estimated last quarter. We were pleased that in early January we were able to eliminate the exposure of $96.5 million of the $212 million.

We still believe that the eventual outcome of the significant amount of interest deferrals on the TruPs collateral will have a big influence on the ultimate performance of our TruPs portfolio. Updated details of our TruPs exposure is presented on webcast slide number 27 including a new column that depicts current interest coverage on each deal.

Importantly, we have repeatedly demonstrated that our Financial Guaranty business is proactive in dealing with its problem credits, often removing a large uncertainty at a discount to our maximum exposure. We will continue to focus on such effective loss mitigation.

As we mentioned in the third quarter, due to the overall reduction of exposure in our Financial Guaranty portfolio, we transferred approximately $143 million from contingency reserve into surplus, benefiting both Radian Asset and thus Radian Guaranty's statutory capital in the fourth quarter.

The terminations which reduced risk and increased statutory capital, the Financial Guaranty contingency reserve transfer, the net risk reduction due to portfolio run off and significant statutory investment gains generated during this quarter more than offset the impact of the operating loss and contributed to Radian Guaranty's risk to capital ratio at year end of 15.4 to 1, among the lowest in the industry. This ratio gives us substantial capital cushion before 25 to 1 would be breached and makes it more likely that Radian Guaranty will not breach 25 to 1.

Despite this improvement we are continuing to prepare Amerin to write business if necessary and believe this is a prudent backup plan given the continued macroeconomic uncertainty.

The change in fair value line was impacted this quarter by a tightening of credit spreads in the underlying corporate CDO collateral and by a small widening of Radian's credit spread, which were the primary drivers of our unrealized fair value gain for the quarter of $142 million. The fair value line could continue to fluctuate. For example, a significant tightening of Radian's credit spread without a corresponding tightening within the underlying CDO collateral could create a substantial GAAP fair value loss that could be unrelated to any actual credit performance.

Our investment portfolio had a return of close to breakeven this quarter and finished a successful year with a total return of just under 12%. We expect to continue to use our cash to commute or reduce exposure on favorable economic terms and this coupled with an expected increase in MI claims should reduce future quarters' investment income.

Expenses came in lower than in previous quarters primarily due to a reduction of variable stock-based compensation amounts. We received a $1.5 million dividend from Sherman in January; this and all future dividends received from Sherman now go directly to Radian Guaranty.

At year end we had approximately $356 million of liquidity at or immediately available to Radian Group; our best estimate of net tax payments that we will be required to make to our subsidiaries by October 2010 is approximately $82 million. This is substantially below our prior quarter projection due primarily to better-than-expected fourth-quarter results driven by a lower than expected MI loss provision and a substantial realized investment again that reduced our taxable loss.

Because this $82 million estimate is based on the preliminary taxable results for the complete 2009 year, we do not believe the number will change very much when our tax return is filed. It is also possible for there to be a tax payment due to Radian Guaranty in October 2011, the maximum of which could be $77 million.

In January we bought back approximately $32 million of par on our June 2011 debt and we paid approximately $29 million leaving $160 million of par outstanding.

With regard to CPS, we have successfully completed the purchase of $83 million of these securities from two out of the three trusts in January at an aggregate purchase price of $29 million. We continue to evaluate our options, but one alternative we have is to collapse one or both of the two trusts at which time the holders of the CPS securities would receive face value. At that time we would receive up to $83 million. We continue to negotiate with the other CPS holders and we will update you with further progress in this regard.

So to summarize our holding company liquidity situation, we had $356 million at year end less $29 million for bond repurchase and $29 million for CPS purchases, leaving $298 million available today. Assuming we decide to collapse the CPS trust, we would receive up to $83 million for a total of $381 million.

Our primary expected obligations, outside those covered by our subsidiaries, are the estimated intercompany tax payment by October 2010 of $82 million, principal repayment of our debt of $160 million in June 2011, and a maximum intercompany tax payment in October 2011 of $77 million. So as of today we expect to have enough to settle these obligations through 2011 with over $60 million in excess liquidity.

There are no material obligations expected in 2012 and our next $250 million of public debt matures in February 2013. I'd now like to turn the call back over to S.A.

Thank you, Bob. Before we open the call to your questions I would like to remind you of our important accomplishments in 2009 once again. We successfully improved our liquidity position and now project excess liquidity through 2012. We improved the risk to capital ratio for Radian Guaranty to 15.4 to 1; as a result of this and our preparation of Amerin if needed we now expect to continue writing high-quality mortgage insurance business uninterrupted for the foreseeable future.

Our mortgage insurance franchise remains strong and we are in a strong competitive position. We leveraged our Financial Guaranty business as a source of capital. We have successfully retained and attracted talented employees despite the economic downturn.

In 2010 we will continue to focus on many of these same goals to further strengthen our MI franchise by writing new possible business, to utilize our Financial Guaranty business as a source of capital, to commute non-core credit risk and to position Radian with the people, products and competitive strength to succeed as markets recover. And now, operator, we are ready to take questions.

(Operator Instructions). Mike Grasher, Piper Jaffray.

Thank you. Good morning, everyone. Bob, I want you to talk just for a second here on the reserve build in the quarter, and not just the quarter I guess, but looking ahead to 2010. As we look at the delinquency count, I think it's on the slide 16 in terms of new defaults, 39,000, is there any way to gauge the vintage that those are arriving from? And as we look ahead to 2010 in thinking about that, if you do have new delinquencies coming in from new vintages or younger vintages versus old, what does that say about expectations for a reserve build in 2010?

Mike, the new delinquencies are still coming mostly from the 2006, 2007 in particular and early 2008 vintages. They're coming from -- the 2009 so far has performed very well. And we did say that we think overall by the end of 2010 the delinquency counts will be down. So absent other influences, I think certainly delinquency counts are a major driver to the reserves.

But you're going to also -- it's also going to depend on the other things that impact reserves like aging and severity, etc. So, obviously that's hard to say, but it's encouraging that the due new delinquencies slowed in the fourth quarter and our statement about the expectation of 2010 is certainly encouraging as well.

Okay. Is it fair to say that the multiplier on 2006, 2007 vintages is a bigger multiplier than what maybe new stage delinquencies might be?

What's your -- Mike, would you mind --?

So if you had the 2006, 2007 vintage -- a new delinquency from 2006, 2007 would the reserve on those be any different than say a delinquent loan coming in from 2008 or even 2009, just thinking about how maybe you changed your underwriting methodologies in those different vintage years?

Yes, I mean to the extent that a lot of the 2006, 2007 are on the non-core products, the Alt-A and subprime, those would certainly have a higher roll rate expectation and therefore the roll rates on those would be higher. The prime loans have lower roll rate expectations. So I think, again, all things being equal, that would have a lower reserve. But you have to look at the loan size and the aging. There are other factors that influence it. But I think that if your question is on the product, certainly prime would have a lower reserve.

Okay. One other topic just to discuss real quickly. How much are -- is there any way to tell us in terms of how much are HAMP and other modification programs impacting your default inventory?

Well, I think we're -- this is Teresa. We're starting to see more traction around both the HAMP and HARP programs, but certainly more from a HAMP perspective. As you've probably seen some of the reports, we've seen quite a bit of volume going up from the HAMP inventory. But now you're starting to also, as S.A. mentioned, see a focus on moving from just getting loans into HAMP trial mods into permanent status. So we're encouraged by those numbers, we're starting to see our numbers go up in that regard and we hope that trend will continue.

Okay. And is there any way to note the performance of those permanent mods I guess to date?

It's really too early at this point with respect to the HAMP program in particular. But I did see some information out of the OCC and OTS that was in I think one of their December reports that would indicate that when payments are reduced for borrowers the incidence of re-default goes down significantly. And so, since the HAMP program is designed to lower the payment for borrowers, that would indicate that we should see a lower default rate associated with those modifications.

Okay. Well, thank you for taking my questions.

Mike Grondahl, Northland Securities.

Yes, just a couple questions. Could you talk a little bit about the termination that was done, Bob? It looks like you paid about $15,000 per delinquent loan, that's a lot lower than a typical claim paid of $45,000 to $50,000. I'd just like to understand that better. And then secondly, the tender I guess happened in January. Can you explain the effect on the first quarter that that will have?

Okay, yes, on the termination we paid a price that was less than the amount of the reserves on the books. So we booked a -- not a substantial but a profit in the fourth quarter because we paid an amount that was less than the reserves. So, we and our counterparty agreed on a price that made sense. But these were loans that were substantially -- or deals that were substantially reserved. So, think about the stop losses being almost fully exhausted on them. And then what was the other question, Mike?

Just on the tender and its effect on the first quarter.

Yes, I mean, more from a liquidity standpoint. Don't think in terms of P&L impact. The price we paid was reflected already in our P&L, so the impact potentially to whatever quarter we act if we decide to collapse a trust would be we would get cash. So, it's more of a liquidity impact than a P&L impact.

Okay, good. But that is cash coming in in the first quarter?

Well, it could be in the first quarter if we decide to collapse a trust or whenever we do.

Okay. And then help me -- how do I think on the bank TruPs slide where you included that interest coverage column, how should I think about interest coverage? Just help me -- how do I think about that, what does that mean?

Well, this is Dave Beidler. The interest coverage ratio, think of it as interest collections on the collateral minus associated transaction expenses expressed as a percentage of the sum of hedge payments and interest payments due on our tranche, any pari passu tranched and any senior tranches.

Okay. And obviously the higher the number the more cash you have coming in to cover the debt service on that tranche, if you will?

Correct. Correct, the higher the better.

Okay. And then, Bob, on the cumulative slide where you come up with cumulative losses, you mentioned that that went up third quarter to fourth quarter. What was the primary driver of that percentage now being a cumulative loss, 13.7% versus 12.5%?

Mike, we constantly update that based on actual results. And the roll rates have gone up a little bit based on just actual experience. So it's mostly the default to claim rates going up a little bit and that's updated as best we can every quarter.

Okay. Thanks, guys, and congratulations on all the progress you made on liquidity. And delinquencies will be something to watch, but finally getting a little bit of good news there too. Thank you.

Thanks, Mike.

Matthew Howlett, Macquerie Capital.

Guys, thanks for taking my question. On the paid claim guidance, I know there's a backlog of inventory that needs to be paid eventually and that was the case last year and I think you beat your guidance last year substantially. In your guidance for this year, what are you baking in in terms of, first, the GSE buyouts you're going to be taking, obviously there are delinquencies on the balance sheet and one would presume they're going to delay the amount of foreclosures going forward.

And then two, Obama yesterday just made it harder for HAMP -- for banks undertaking HAMP to basically foreclose. They said that you have to wait 30 days after they fail to see what they can do. And they also made it tougher for banks to threaten HAMP foreclosures on borrowers in HAMP trials. What are you baking -- how are you baking those two components into your guidance?

We're not really expecting those things to impact the claims. So if they do it's certainly conceivable that the claim volume is continuing to be less than we expect and it's going to slow things down. So that is certainly possible. We are though expecting the amount of claims received to increase and some of the moratoriums to be lifted and things to work themselves through the system.

So, we haven't looked at it and said those things are going to impact claims and reduce claims. So if they do we may be below our guidance again. But we have no reason to see that at this point.

Okay, and then GSE -- the same with the GSE buyouts, you're just assuming that they basically just continue the foreclosure process as they normally would, there wouldn't be any delay because they've taken them on balance sheet, if you will?

Right, that's right. We haven't figured that in because we really didn't have a way to estimate it.

Got you, okay. And then moving to the Financial Guaranty unit with great performance. You mentioned your credit spreads tightening could result in a mark to market loss on some of the CDS. And your credit spreads presumably will begin to tighten given your liquidity. Can you give us just a sense on how you view I guess -- what your -- how you view book value, changes in book value going forward if your spreads were to tighten not back to maybe historical areas, but maybe come in 500 basis points over time?

And then maybe the underlying corporate CDOs -- they'll tighten. I mean, how do you look at your book value? Any sort of clarity you can give us on that? Because there's going to be some volatility on the GAAP number as we move forward. Any type of clarity would be great in how you view book value going forward.

Yes, I mean it's a great question. And so far as years have gone on the spread movement has been fairly in sync. So if corporate spreads come in and our spread comes in in a similar way, they will offset each other in terms of fair value like they have this year for example, although the quarters may be a little bit volatile.

But we did want to point out, and you said it, that if our spreads come in much more than the underlying collateral, we may have a significant GAAP loss that in the end, absent credit events, wouldn't really be meaningful. All the while the structured transactions which are derivatives are going to expire over time, which is going to offset any impact, positive or negative.

So, you're right, it could be volatile. We did want to point out the possibility of our spread tightening significantly. And if that were to happen in a vacuum with no other credit event we would view it as meaningless and it would reverse over time. But it could impact book value from quarter to quarter potentially in a big way. There's nothing covenant wise or business wise that we think would be triggered from that. But certainly we just want to make sure that people understand it and are aware of it.

Great. Thanks for the clarification. So your $24 plus book value today, to you that's a real number and any volatility will just eventually be reversed out ultimately if you don't pay any claims in the (inaudible) very high attachment points anyway?

Right. It's relatively real. Certainly there are some transactions that might be a little bit different. But relatively real.

Great, thanks, guys.

Nat Otis, KBW.

Good morning, gentlemen. A couple quick questions. First one, just to clean up on a numbers one for HAMP. You said that to date 27,000 have gone into HAMP with 1,750 have actually completed the modification process?

Yes, those were the numbers actually as of the end of the year. So the numbers are slightly up as of the end of January. But, yes.

Okay. Any thoughts on how many are out of it without having been modified or cured that are now not there of that 27,000 but aren't necessarily (technical difficulty) been modified?

Do you mean loans that were put in a trial status that may have been canceled or fallen out?

Yes, correct.

You know, I believe the number is relatively small. But it's probably about a little under 1,500 loans.

All right, that's helpful. I wouldn't have expected it to be high, I just was curious to kind of get that. Second, on page 16, the slide where you talked about the rescissions and denial activity, anything to read into? Fourth-quarter numbers you seem to do pretty well on the rescissions and denials in the fourth quarter, more so than prior quarters in 2009. Any thoughts on why there was just more done in the quarter or is that just a matter of cleaning up by year end?

No, I mean I think the trajectory on actual denials and rescissions has been going up. Although the estimate came down slightly in this quarter the actual number has gone up. And that's basically what we expected.

Okay, fair enough. And then just last, any comments on competition out there? You have a new market entrant that got GSE approval and I know this morning you just had some commentary from another competitor talking about lowering pricing for higher FICO business that might compete against FHA. Any comments on competition in the market right now?

Yes, we'll answer it in two parts, first new entrants and then second gaining ground in CFHA. In terms of new entrants, we look at that as a positive in terms of the fact that capital out there which finds our industry an attractive place to invest in. Having said that we certainly appreciate the fact that new entrants delayed getting into the market until we and our peers got into a stronger position rather than a year again when we were most vulnerable. And with that I'll ask Teresa to address the FHA comment.

Yes. I mean, we've been very focused on what we need to do to move MI penetration and move volume back to MI execution versus FHA. And we've been working with lenders over the last few months to identify program, product and pricing opportunities that would move share back to MI. In particular we've been working on the use of our existing split edge program that is competitively priced with FHA, especially for high FICO borrowers. So we're going to continue to explore and evaluate viable opportunities to move share, that's a big focus of ours for 2010.

Okay, that's very helpful. Just one last quick question. Looking out in 2010 when you're projecting what the market is going to do, what are you thinking from a home price appreciation standpoint? How does that factor into your projections out in 2010?

This is Scott Theobald. We actually expect house prices -- they've been flat to slightly up and we expect that trend to continue.

Okay, great. Thank you.

Christopher Neczypor, Goldman Sachs.

Thanks for taking the call. Just a question on your Financial Guaranty book. Given what we're seeing in the muni market with maybe Harrisburg as the headline example, I was hoping you could talk a little bit about what you're seeing in your underlying exposures within the public finance book and how you're thinking about any potential problem credits within that piece of the portfolio? Thanks very much.

This is Dave Beidler again. We've seen stress across many sectors of our public finance portfolio, not surprising given the current environment. We believe that the sectors that most concern us surround our healthcare and long-term care books of business at this point. And we also have our Chief Risk Officer, Derek Brummer, here. Is there anything you want to add to that?

No, I mean I think the trend we've seen with respect to the government-related issuers, they've generally been holding up in the stress. Like Dave said, it's really the healthcare and long-term care where we've seen the most stress. And we've seen a certain amount of stability on the healthcare side with certain issuers reversing investment losses that they've seen in 2008 and 2009 are starting to reverse themselves.

So for things like long-term care, I mean, what is sort of the expectation for 2010 and 2011 and how that might manifest itself in terms of potential losses?

Well, we monitor our credit very closely, some of them are receiving more scrutiny than others, obviously. But we are not making any projections about losses in either of those sectors at this point.

Okay, thanks for taking the question.

Mark DeVries, Barclays Capital.

Yes, thanks. I was hoping to get a little additional color about the guidance around delinquencies, expecting them to stabilize and then head down by the end of the year. Does that at all depend on loans curing through HAMP and a decline in unemployment? Or does your analysis suggest that given where your book is and its aging that you're kind of already nearing a peaking of losses?

This is Scott Theobald again. I guess the answer is kind of yes and yes. We noted that there's been a slowdown in new defaults; we've also seen stability in cures. We're seeing in early-stage delinquencies actually an increasing rate of cures, which is a good sign. Obviously we've talked about modifications and we think those will be important to the delinquency inventory being reduced.

And lastly, we look for signs of credit burn out. In the earlier books, the earlier vintages, especially 2006 and prior, the composition of new defaults suggests that (technical difficulty) credit burn not occurring and that most of the new defaults now are from repeat defaults as opposed to first-time defaults.

Can you give us any sense as to the pace you expect in the decline of delinquencies over the next year or two?

I'm sorry, I didn't quite hear that?

Is there any color you can give us on the pace of delinquency, of the decline in delinquencies you would expect over the next year or two?

I'd actually expect it to be kind of flat to just slightly down throughout the year.

Okay. And one additional question. Any development recently around protests from servicers around rescissions? Any concern that you could be dealing with a law suit similar to what Magic faces?

Hi, this is Teresa. One of the things that we have been hearing from servicers and from some third parties who've worked with servicers is that servicers feel as if our process, which of course hasn't changed over time, is the most transparent process that's out there and we're continuing to try to make sure servicers understand the reason for any rescission or denial.

With that being said, we have seen a rebuttal rate go up a little bit. It's probably around 20%. But a number of those rebuttals are sort of form rebuttals as well that don't really bring any new information to the table. So, we continue to have a process of making sure that servicers understand the reason for the rescission, that they get information about that, that they have an opportunity to rebut that decision. And we do review that. And if there's new information that they provide we have reversed those decisions with appropriate information. But without that we see most of the rescissions stand.

Okay, thank you.

Steve Stelmach, FBR Capital Markets.

Good morning. Just a quick follow-up on the delinquency guidance. You're expecting delinquencies to be flat or down by year end, that's a total count number. But can you give us a little bit more detail on new delinquencies coming into the inventory? Maybe some historical context on what -- you mentioned credit burnout. When books of business hit credit burnout what's the pace of new delinquencies? Does it sort of plateau at those elevated levels or does it tend to come down pretty aggressively once you hit that burnout?

I'm not sure you can characterize it as being always the same. And I think this economic situation is probably a little bit different from past. Usually what you'll see is you'll see the trends kind of rising, then it will be a bottoming period and that's what we appear to be in now is kind of a bottoming period. And then of course you'll see it start to gradually improve.

The reason I -- go ahead.

I was going to say, so when you think about new delinquency count, does that tend to plateau once things peak and you stay there for a while or does it tend to reverse?

Yes, I expect a plateauing before a reversal.

Okay, okay. And then is that usually a drawn-out process or -- I know it is tough to categorize this credit cycle like any other, but what's your expectation?

I don't expect it to snap back sharply. I expect there is kind of a bottoming process that has been going on for a bit of time now. And I expect that to continue. In fact, in the fourth quarter, we made the comment about the seasonality of the fourth quarter. That was the first evidence that we actually saw kind of a cyclical bucking of the seasonal trend. But it is awfully early to declare kind of a win on this gain. Everything is clear from here.

Great, thank you very much.

Alec Ofsevit, Credit Suisse.

Good morning, I have two quick questions. My first one is can you just tell us what your default to claim ratio is on the first lien book before denials and rescissions?

We don't disclose that. We give you the net number.

Okay. And then my second question is a broader question. It is just what do you see as the future of the size of the private mortgage insurance market compared to the FHA marketshare, which today looks like it is close to 85%? I guess how do you see that trending over time?

I will ask Teresa to comment specifically in terms of some of the things she has been involved with and in customer discussions. But my sense from both reading what is happening at the FHA and their intent, as well as from reading what the industry players in the mortgage -- on the mortgage side are feeling is I think there is a view that is shared by many others, including the FHA, that this market should have room for both government and private players. And that is supported by the fact that we, the private mortgage insurance industry, stood behind a significant amount of losses that otherwise would have been borne by the taxpayers.

Also from a lender perspective, having been one myself and having at Radian a team of people running our mortgage insurance business who come more from a lender background than a mortgage insurance background and therefore are closer to our customers. The sense I get is lenders get concerned about putting too much many eggs in one basket and there's a degree of concern I sense on their part that they have too many eggs right now in the FHA basket. Having said that, we have to do a lot of work in making our product more attractive and other things that Teresa has been engaged in. Teresa?

Yes, I would agree with S.A.'s comment that one of the things that we're hearing from our customers is that they would like to see movement back to a larger percent of MI, sort of conventional execution. So, as I mentioned, we're continuing to work with them to identify what program matters or pricing changes need to be made in order to make that happen. Obviously we want to do that in a way that still allows us to have appropriate credit and pricing for our book of business.

But clearly that -- there seems to be a lot of focus there both on our part and as well as the lender customers. I'm also encouraged by comments from the FHA and the Department of Housing that talk about the fact that they would also like to see some movement back to the private sector. That they think FHA shouldn't be this large of a size of the market. And so I view that as a positive as well for movement back.

Great, thank you very much.

Mike Grondahl, Northland Securities.

Yes, just a quick follow-up. I might have missed it, but S.A., did you speak to what you thought your market share was in the fourth quarter? Sometimes you've given out that general level.

I did not. But our market share for the year came in at about 20%. The reason is that we feel good about the fact that we've gained share in this environment, but our priorities -- we want to be very careful -- are focused on writing quality business first and market share is derived from them that rather than shooting for a particular market share objective.

That being said, we are very happy with the fact that we've gained share and it is a sign of our improved franchise. And we continue to focus on actions like continuing to go after new customers and focus on writing new business which hopefully should be positive. But our first emphasis, having come out of the cycle, is the quality of business and if put into a position we would be willing to trade off marketshare for quality.

Got you, okay. Thank you.

Steve Percoco, Lark Research.

Thank you. You've indicated that you have excess liquidity through 2012 and that the risk to capital ratio looks good, but what are you thinking about both the need and the opportunity to raise capital over the next few years?

We have consistently said that we remain open to new capital, but we want to do it at a time and in a way that makes sense to us -- if it does make sense to us at all. So we, again, continue with the same position where we say that we remain open to it based on the numbers you saw from a risk to capital perspective and a liquidity perspective. We have come a long way in terms of need for capital for liquidity and short-term liquidity needs in particular.

But if there are opportunities in the market to do more business and having more capital in the face of uncertainty being positive we'd be open to it if it made sense.

But you don't have any specific targets or thoughts that say a couple of years down the line you may need to or want to raise capital?

We do not comment on any specific targets or plans we have. And particularly in a world that is changing so rapidly our plans would get dated very quickly.

Thank you.

Joe Di Carlo, CreditSights.

Hi, guys, thanks for taking the call. Would you guys be able to comment on the impacts that you took from the terminations as well as the contingency reserve move if you haven't done that on risk in force to capital?

Well, the contingency reserve transfer added $143 million to surplus. So that's the transfer that occurred in Financial Guaranty. In terms of the terminations and some of the other things, all of them were positive to stat capital, none of them were nearly as material as the contingency reserve transfer, even collectively. But they all positively contributed to the risk to capital situation.

Is there any range you could give on what the risk in force to capital ratio would have been excluding those moves?

No, we don't really do that. I mean all of these were components of the calculation which are included. So to give numbers without them probably isn't really relevant.

Okay, that's fair. And looking at claim severity, is there a way that I could find -- I know is was in your K; is it going to be in your K going forward?

Yes, and it's our disclosures. It's actually on page -- exhibit L of our disclosure where we have average claim paid. And average claim paid has gone up a little bit this year.

Okay. And is the primary difference between -- I see severity is pretty low; at year end it was about 28%, 2008, compared to maybe PMI which is closer to 100%. Is that -- that's all due to the effect that you're taking claims paid by the original loan amount instead of risk in force?

That could be. I mean, that could account for that kind of difference. 28% sounds right because our average coverage percentage is about 25%. So, that seems right as a percentage of the loan amount.

Okay, so in terms of risk in force it's proud probably closer to around 100%?

Yes, absolutely or (multiple speakers).

Or above?

Yes.

Okay. Okay, that's it. Thanks.

You're welcome.

With no further questions I'll turn it back to you, Mr. Ibrahim, for closing comments.

Thank you, Operator. And thank you all for participating on our call. Thanks.

And, ladies and gentlemen, that does include your conference. You may now disconnect.