Radian Group Inc (RDN) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Radian's fourth quarter 2010 earnings conference call. (Operator Instructions). I'd like to turn the conference over to Emily Riley, the Vice President of financial communications. Please go ahead.

Thank you and welcome to Radian's fourth quarter 2010 conference call. Our press release which contains Radian's financial results for the quarter was issued earlier today and is 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 Bazemore, 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 be based on 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 2010 form 10-Q. This is 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. Throughout 2010, I have emphasized several priorities critical to Radian's success as well as the ongoing challenge of our uncertain operating environment. Today, I will take a few minutes to review the progress we have made against our priorities in 2010, then highlight our financial performance in the quarter and provide insight into a few industry trends. After my comments, Bob will cover the details of our financial position. Then we will open the call to your questions.

Before we discuss progress against our priorities, it is important to note that despite the steady decline in our mortgage insurance delinquencies and signs of stabilization in financial guaranty credit trends, we at Radian continue to be disappointed with the pace of recovery for the economy and the resulting impact on our business. While there have been several reports over the past weeks citing acceleration in the economy at the close of 2010, the year did not bring the improvement to the unemployment rate or the momentum to the housing market that we had all hoped for. It is encouraging that the latest statistics for economic growth are considered to be sustainable instead of temporary fixes from the government stimulation efforts. Yet, despite the so-called surge in the economy, the unemployment rate is not expected to improve significantly in the near term.

Although we declared victory on the recession a year ago, there has been little reason to celebrate. However, there are clearly positive developments and successes to look back on in 2010. Let us take a few minutes to review our priorities and progress during the year.

First, the risk to capital ratio for Radian Guaranty was 16.8 to 1 on December 31, 2010, among the lowest in the industry. This compares to a ratio of 17.2 to 1 in the third quarter and 15.4 to 1 a year ago.

As mortgage lenders begin to differentiate their mortgage insurance providers based on financial strength, our goal is to be the partner of choice for lenders large and small and to capture as much high quality profitable business as we can.

We were successful in raising approximately $1 billion in capital during the year to help insure our success as a leading mortgage insurance company. During the year, we contributed approximately $300 million from Radian Group to Radian Guaranty with $200 million of that contribution made in the fourth quarter. We also maintained the financial flexibility and sufficient liquidity at the holding company to contribute additional capital if needed.

Second, our mortgage insurance franchise remains strong. We have the customer relationships, sales strength and capital to write even more business. We are pleased to see our NIW increase for four consecutive quarters in 2010 and to maintain market share throughout the year of 21%. Perhaps more importantly, we were encouraged with our industry's ability to recapture market share from the FHA, slowly but steadily throughout the year, a trend we expect will continue. And we at Radian are working hard on Capitol Hill to influence the best structure for the qualified residential mortgage definition, or QRM, as well as the most effective housing finance reform legislation for our industry and for sound housing finance systems. I'll discuss a few of our efforts in a moment.

Third, excluding gains and losses on derivatives and other financial instruments, our financial guaranty business was profitable in the fourth quarter and for the year. This business continues to serve as a unique source of capital for mortgage insurance and we expect Radian Asset to pay another ordinary dividend to Radian Guaranty in June 2011 of approximately $60 million.

In addition we signed an agreement this week to purchase a financial guaranty insurance company shell, that has not written any business but has obtained licenses in 36 states and the District of Columbia. We are in the early stages of exploring the potential uses of this company, so it is premature to go into more detail. However, it is important to note that whatever use we pursue for this new company it will be consistent with our focus on reducing Radian's non core risk and putting Radian Asset's capital to market for our MI business. We will provide you with updates as we make progress.

Now, let's turn to a few highlights of our fourth quarter and year-end performance. Earlier today, we reported fourth quarter net loss of $1.1 billion or $8.55 per diluted share. The net loss for the full year 2010 was $1.8 billion or $15.74 per diluted share. These results include the impact of the valuation allowance of $841.5 million or $6.35 per share in the fourth quarter and also reflect a pretax loss from the change in fair value of derivatives of $185.9 million for the quarter and $558.7 million for the year. Bob will discuss the valuation allowance in more detail. But it is most important to remember that we continue to project long-term profitability for Radian. The valuation allowance does not impact statutory capital, our risk to capital ratio, our liquidity, or our business operations.

We were encouraged by four consecutive quarters of declining delinquencies in 2010, as well as a slight decline in January. For those of you familiar with seasonal trends affecting our mortgage insurance business, the fourth quarter is typically the weakest, with the highest volume of new delinquencies and the first quarter is seasonally the strongest with the lowest number of new delinquencies. Therefore, the 4% decline in primary delinquencies in the fourth quarter was a particularly positive sign for our business. You may find the details of Radian's new defaults and other data on our default roll forward chart on slide 17 of our webcast presentation.

We have all read reports recently about the shift from the government's modification program, HAMP, to proprietary or private modification efforts. While it continues to be difficult to gather complete data on any modification programs from various customers and services, we are also seeing the same trend, particularly for loans that began a HAMP trial and then transferred to a proprietary program. We are hopeful that the modification programs will be successful in helping borrowers with a more affordable monthly payment.

We were pleased to see another quarterly increase in new insurance written for the quarter which represented growth in new business for four consecutive quarters. The $3.8 billion of new MI business we wrote in the fourth quarter was clearly impacted by low mortgage origination volume and mortgage insurance penetration. However, it again consisted of loans with outstanding risk characteristics 100% prime credit quality and 82% with FICO scores of 740 or above.

Our industry is slowly recapturing market share from the FHA, and we are focussed on writing as much high quality mortgage insurance business as possible.

Last month, Teresa and I had the opportunity to meet with several legislators on Capitol Hill. And Radian also hosted a panel discussion for new and continuing staffers. All of our meetings and discussions were encouraging as we are hard pressed to find anyone opposed to creating a healthier mix of public and private capital to support our country's housing finance system. In fact, we found the prevailing sentiment to be in support of a larger role for private capital. As we await the draft definition for QRM, we are hopeful that it will include a low down payment option for QRM with the stipulation of private mortgage insurance. Although it is possible that the draft rule may not explicitly include our industry, we believe the final definition will provide a going forward opportunity for private mortgage insurance in serving the needs of low down payment borrowers as the housing market recovers.

During our visits on the Hill, and our panel discussion, we also heard a resounding support for private capital in overall housing finance reform efforts. FHA commissioner Dave Stevens was generous with his time in providing opening remarks to our panel attendees last month and again shared his goal of creating a more traditional balance of business between private mortgage insurance and FHA. We are beginning to see the transition and we look forward to regaining more share in 2011 and beyond.

Finally, let me remind you of four important points. First, Radian Guaranty's risk to capital ratio 16.8 to 1 is among the lowest in the industry. In addition, we maintain the financial flexibility and sufficient liquidity to contribute capital to our mortgage insurance company if needed. Second, we believe that our existing book of business as of December 31 contains an embedded value of $1.5 billion as shown on slide 11 in our webcast presentation. Third, our mortgage insurance franchise remains strong with growth in NIW for four consecutive quarters in 2010, and a market share of 21%. Finally, despite an uncertain economy, we are pleased with signs of credit trend stabilization in our businesses.

Now I'd like to turn the call over to Bob for details of our financial position .

Thank you, S.A. and good morning. I'll be updating you on the P&L activity and trends for the fourth quarter of 2010 and our financial position as of year end 2010.

Our MI provision for losses was $426 million this quarter, slowly improving but still at a significantly higher level than what is needed for the MI segment to return to operating profitability. We believe that a key future driver for a return to profitability will be a further reduction in new delinquencies beyond what occurred in 2010. While we do expect new delinquencies to decline during 2011 and beyond, based on the expected pace of these improvements we don't believe that the MI operations will be profitable in 2011.

There were no material changes to the components of our loss reserve estimate during the quarter. The severity of pool insurance claims had increased significantly through the first three quarters but there was only a slight incremental increase in the fourth quarter. While our overall loss reserves remained relatively flat during the quarter, pool insurance reserves went up due in part to an increase in the number of pool delinquencies while primary reserves went down mainly due to a decrease in the number of primary delinquencies.

The dollar amounts of loss avoided on submitted claims related to denials and recisions for the fourth quarter of 2010 was approximately $267 million compared to $256 million in the third quarter of 2010. Claims paid in the fourth quarter were $392 million, excluding the significant recoveries from captive reinsurance termination.

We expect claims paid in the first quarter of 2011 to be approximately $400 million and for the year 2011 we believe that claims paid will increase to the $1.7 billion range. We have assumed in our projection that a recent decline in claims received is due to the foreclosure delays and that claims received will catch up over the course of 2011. If that doesn't happen, our estimate could be high with the delays moving claims further into the future.

The sequential increase in premiums earned this quarter is due primarily to a reduction in the premium refund accrual associated with a decline in rescission activity. The relative mix between rescissions and denials has changed so while the overall combined rate is only down very slightly, the proportion of denials for which there is no associated premium refunds has grown.

Other mortgage insurance risk in force is down to $455 million from $1 billion a year ago and we continue to believe that the risk of material credit losses beyond what is already reserved is minimal. Our only remaining international CDS transaction was terminated in the fourth quarter.

The change in fair value line was primarily impacted this quarter by an increase in LIBOR, a tightening of corporate credit spreads and most prominently, a significant tightening of Radian's own credit spread. resulting in a net fair value loss on derivative instruments for the quarter of $186 million. Another $52 million of fair value losses are included within the loss on other financial instruments line. The fair value line for the fourth quarter includes approximately $11 million of financial guaranty, premiums earned on derivative contracts and for the year, the earned premium on derivative contracts is $46 million.

The total of our December 31, 2010, balance sheet amounts relating to our derivative exposures and consolidated transactions is now a net [GAAP] liability of approximately $1 billion. In contrast and as outlined on webcast slide 19, we have updated the estimate for net present value of future credit loss payments at approximately $500 million, leaving an approximate gap of $500 million that we expect to be recognized into income over time as this amount reverses, absent any additional credit loss payments.

Unrealized losses on investments for the quarter were caused primarily by an increase in interest rates in the quarter, which impacted our fixed income portfolio, driving a loss of $77 million which ran through our P&L, representing losses on our trading securities.

In financial guaranty there continues to be general signs of stabilization in credit trends with no major changes with regards to any of our major asset classes during the quarter. Our updated estimate of potential dividends to Radian Guaranty for 2011 is approximately $60 million.

We recorded a valuation allowance of $841.5 million this quarter against our net deferred tax asset, which represented almost the entire net asset. While we continue to believe that we will be profitable in the future, as evidenced by the projections and our embedded value analysis, the timing of that expected return to profitable GAAP results is still very uncertain. Not only because of the uncertainty in the MI legacy book and the slower than expected pace of the economic recovery, but also because of the volatility of the changes in fair value of derivatives and other financial instruments.

Our recent history of losses, including the significant loss in the fourth quarter, carries more weight in our deferred tax recoverability analysis and in our judgment, presently outweighs the positive factors and trends that we observe today.

It is important to note that this allowance has no impact on stat capital or risk to capital ratio or our liquidity. While the valuation allowance has materially increased our GAAP net loss and reduced our book value at year end, the deferred tax asset is still there and available to be realized and in our opinion has economic value. The asset includes some tax loss carry forwards which begin to expire in 18 years, with the majority of the asset having a life of 20 years or more. If we achieve our projections and return to a period of sustained profitability, and/or can achieve greater visibility and certainty regarding future profitability, all or a portion of the valuation allowance would be reversed.

Our projected holding company cash resources are estimated to be approximately $640 million after giving effect to the amounts we can redeem from our CPS securities and subtracting all expected payments through 2011. We may use some of this available liquidity to make a contribution from Radian Group to Radian Guaranty during 2011, in order to maintain a strong risk to capital position.

We'd now like to turn the call over to the operator for questions.

Thank you. Our first question will come from the line of Steve Stelmach from FBR Capital Markets. Please go ahead.

Hi, good morning.

Good morning.

Can you give us a little bit of context on the commentary on the new -- the delinquencies inventory as of January? You said it was down from December. And typically January is the worst seasonal month of the year, but what's going on there? Is it a matter of higher paids or new notices significantly lower?

There's nothing really changed in the trend that we saw in the fourth quarter, so similar trend, delinquencies down slightly and obviously we'll update that at the end of the quarter.

Okay. And then maybe Teresa, on the QRM, can you give us a little context around what regulators need to consider especially when it comes to congressional intent?And then I don't know if you saw Senator Hagan's comments recently about -- in support of mortgage insurance. Being a co-author of the QRM language, does that gain a lot of traction with the regulators or is that something they don't need to consider?

Yes. S.A., in his comments, referenced the fact that we had spent some time on the Hill very recently, and one of the discussion points is around oversight, and it's clear that members of congress and their staff are very focused on concerns around where the regulators are going with this and whether it's sort of staying in the context of what congressional intent was. And as you recall in the actual Dodd-Frank Bill, one of the things that the regulators were supposed to take into account was taking a look at mortgage insurance and how that should potentially play into that definition, and in fact, the industry has provided information to all of the agencies that are participating in the rule making, showing that if you look historically, that loans with MI performed better than loans without MI and on top of that the cure rate has been better, given all of the efforts that we have been making as an industry to try to help people stay in their homes. So there seems to be quite a lot of focus on that. I think that's why it's very uncertain when the initial rule will be published because this seems to be a big issue of discussion along with the issue around whether there should be servicing standards in the rule when its comes out.

And Steve, it's interesting and should not be surprising that with the growing mood in Washington towards a greater role for private capital as there is an appreciation that the QRM may have implications of driving more business to the FHA from the private MI industry, that is a factor of growing concern to the legislators.

Great. That's very helpful, guys. And just one point of clarification, Bob, on slide 11. Gross portfolio losses down quarter over quarter. Is that just a function of higher paids or is that actually an expectation for lower losses going forward than you previously thought? That $7 billion number.

Yes, it's really just a reflection of what occurred in the fourth quarter. There's not a -- there wasn't a material change in expectation of future losses.

Got it. Understand. Perfect. Thanks, Bob.

Sure.

Next we go to the line of Douglas Harter from Credit Suisse. Please go ahead.

Thanks. I was wondering if you could talk about the aging of yourdefaults and when you think that the 12 plus payments missed might sort of peak out.

I think that we saw that the number actually came down this quarter, but the percentage went up. And it's kind of the same old reason, that the old delinquencies are staying there, they're not filtering through for all the reasons. Delays in foreclosures, and most recent being the documentation. So it's really going to relate to when those come through the pipeline either as claims or cures via modification and/or other means of curing. We are not seeing signs that -- the expectation that they're going to be cleared through in the near future. It is unfortunate, but it's going to still take a while.

Thanks. Then just one clarification on the holding company cash that you reference, the $640, so that includes all sort of expected expenditures through 2011 you said?

That's right. There's really two that stand out and we have highlighted them in the past. The one is the $160 million principal maturing and the other being the intercompany tax obligations. So that $640 is net of those expected payments.

Great, thank you.

Sure.

And next we go to the line of Mike Grondahl with Northland Capital Markets. Please go ahead.

Yes, guys. Just a couple questions, but generally, do you envision a time during 2011 when overall declining delinquencies really kind of mean something and lead to a decline in the provision? I mean, is that something -- when do you think that point occurs?

Mike, I think we saw a significant decline in the new delinquencies in 2010. We do think that's going to continue, so when exactly -- you've got your seasonal first quarter, but over time we expect them to decline, forgetting about the seasonality, and that would lead to a lower provision and an improvement in the results. Now, we also said the expected pace of that is slower than expected. Has been and that's where we said 2011 we don't expect to be profitable on an MI operating basis in 2011. But we do expect the improving trend to continue.

Okay. And in terms of the paid claims, $392 million, there was mentioned a captive termination benefit of $323 million. So the net cash out the door, am I correct in understanding, that's about $69 or $70 million or did you have to pay for that termination benefit?

No. You're right. The reported paid claims is net of that number, but what basically happened is there was cash sitting in a trust that was on a balance sheet as a recoverable. That recoverable essentially got paid to us all at once and it's accounted for as a claim recovery. So we have cash in lieu of that recoverable, but nothing really changed. Just a shift in balance sheet.

Okay. But is it fair then to say that the cash out the door to you net was about $70 million?

Yes, that's right.

Okay.

$60 million something. Whatever we reported.

Got you. And then lastly, maybe for S.A. S.A., you mentioned this -- I think it's $82 million acquisition of this financial guaranty shell. What type of options do you think you have? Does that make your financial guaranty business somehow add some optionality to it or opportunities? Could you kind of help us understand that a little bit?

Yes, I'll try, although we in our press release made most of the points. As I said in my comments, at this point it's very premature to comment in detail but all I can say is that our priorities with respect to our financial guaranty business remain unchanged in that our priorities in the financial guaranty business is to thoroughly and rigorously survey our exposure to effectively mitigate exposure as appropriate and to look for opportunities to reduce our exposure and this we see on an exploratory basis as potentially providing us with greater flexibility and perhaps more opportunities if it works to manage the reduction of our exposure and -- our financial guaranty exposure and therefore, relieve more capital to support our MI business. So that is unchanged. This could provide us with more alternatives along the lines of what we are articulating in the press release.

Okay.

Next we go the line of Mike Grasher from Piper Jaffray. Please go ahead.

Thank you very much. Bob, just a couple of questions here. On the financial guaranty business, I think you do show a slide in terms of the runoff on the CDO business. What about the rest of the book of business, do you have an amortization schedule for the entire portfolio?

We provide it on the corporate CDO's because that's such a substantial portion of the structured (inaudible - technical difficulty.) I think it's safe to assume that the structure business is shorter. Similar life to the CDO. But you also have the TruPs too. We have a slide on TruPs that shows you the maturities there. And obviously the muni business is much, much longer. So there's really a division between the structured and the municipal.

Yes. And is there an amortization schedule on the munies?

We don't publish it, but it's a much longer period. I would say 20 years or so.

It's a longer tail business.

Sure.

We clearly have amortization schedules. We don't disclose that information. I think the average life is 16 or 17 years.

Okay. Thanks. Then just S&P came out with proposed revisions to their bond insurance rating. Is that of any concern at all given that you are in runoff mode?

Dave can answer.

We're very well aware of S&P's new rules. They are more conservative than the existing ones. We're evaluating the impact on Radian Asset's portfolio currently. I don't think there'll be a significant impact given the Radian Asset's current rating level.

Okay, thank you.

Next we go to the line of Nat Otis from KBW. Please go ahead.

Good morning. Just a couple of quick questions. Any way you could give a little bit of your general expectations going forward on cure rates? Kind of in light of maybe some competitor commentary of being more concerned on how cure were going, going forward?

This is Scott Theobald, good morning. What we are seeing in cure rate activity is kind of consistent again with seasonal trends. So there's really more that I could add besides that.

Seasonally, I mean certainly January, as was pointed out before is one of the tougher if not toughest months, but after that wouldn't you expect seasonal cure rates to improve from there? Is that something you factor in or not?

We have no reason to believe that cure rates won't improve during the first quarter.

Fair enough. Then second, just if you could give a little commentary, you talked about how the foreclosure moratoriums might have impacted delinquencies. Can you give a little bit more color on how that affects your thinking kind of year over year, 2011 to 2010.

Well, I think that when we look at the foreclosure moratorium, it sort of is elongating out the whole process, and I think one of the important things to note which we have talked about before is that for our claims we have a two-year cap on interest. So that period of time is less of an issue in that regard. We also under our master policy have the ability to reduce the claim payment if there's servicer negligence, for instance. We have some things that we think will help mitigate any potential impacts to us. Having said that, obviously, this sort of elongates the whole process of having these defaults move through the pipeline to get to foreclosure and any type of claim being submitted.

Okay, that makes sense. Then how quickly, if in your thought process there was ultimately with the moratoriums ending that there might be a pickup for some brief period, where -- at what point in time do you think that pickup ends? When do you think that will be already baked into the numbers you're seeing?

I think that's really hard to predict because it's going to focus on so many different things. It's going to focus on whether or not there -- how much of a backlog there is, where those defaults are. How backlogged the courts are, if they're judicial states. There's been focus on trying to havemore mediation going on, that could have an effect on the timing. As you recall, or probably know, there's a 50-state sort of AG look into some of the foreclosure issues and there's been a lot of pressure by the AG's to do more or focus more on potential modification. So there's so many factors there that it's very difficult to have any prediction around time frames.

Fair enough. Thank you.

And next we have a question from Donna Halverstadt from Goldman Sachs. Please go ahead.

Good morning. My main questions were asked but I do have one detail I wanted to follow up on. Can you quantify for us what your expected intercompany tax obligation is for 2011 as well as for 2012 if you have it?

There's no expectation for 2012 and the current expected obligation, net so there's ins and outs, but the net is in the $55 million range.

Thank you.

Your welcome.

Next we have a question from Conor Ryan with Deutsche Bank. Please go ahead.

Hi, how are you. I was just wondering if, very high level, you guys could possibly talk about how you feel about profitability in 2012 and the prospects for it?

I mean, obviously, if we had visibility that we were willing to share at this point, but we don 't yet. I think that we could say that we think 2011 is going to continue to improve and we think 2012 is going to improve from there. We do think we're in a period where we're going to improve. The pace of that improvement has been slower than we expected so far. And it's really going to depend on that. When we get back to profitability.

Okay. And just one follow-up, where do you think premium yields could shake out going forward?

I would say that they're probably similar to where they are now. We don't expect dramatic changes. The mix between borrower paid monthlies and some of the single premium products, if that shifts, that could change it around a little bit. I think we have seen some small declines because we've been doing more single premium. But generally, we don't expect them to change dramatically.

I would just add to that, that some of that has been the focus on shifting business back from the FHA. So some of that shifting that Bob talked about is related to our focus on marketing products that favorably compete with the FHA.

Right. And the other thing you're seeing, and you're going to see it after this quarter because we had these large captive terminations, is that we're going to be ceding less premiums to captive and that's going to help our premium earned line. Of course the losses won't be recovered either, but just on premium yield that will help the premium yield.

Now, another factor that could affect premium rates going forward is the shape of the housing finance industry as an outcome of at what level government guarantees (inaudible), so if that is taken down from the current level of 80% to 70%, there may be an opportunity to write more MI business, but perhaps at reduced premium rates so there's several unknowns there.

Thanks, guys.

Next we have a question from the line of Jasper Burch with Macquarie. Please go ahead.

Hi, guys, it's Matt Howlett. Bob, S.A., just on the, again, the return to profitability for the forecast, what can we assume for cure ratios in 2011? It sounds as if it's not going to change much from the 93% average you had in 2010. Is that fair to say?

Bob?

I don't think we're expecting a dramatic change in the cure ratio. I think the improvement in the results is going to be driven more by a decline in new delinquencies.

Okay. So in order to get to profitability, would you need to see like a 100-plus reading on the cure -- is that sort of what you need to see delinquencies go down ex paids, to actually see that loss reserve go down?

I mean, I don't think that there's necessarily that link or that ratio to look at, Matt. I think -- we think a lot is going to be driven by the decline in new delinquencies.

And perhaps to some extent the shape of the delinquency bucket we have because as we said before and many of our peers keep reminding everyone, the later stage bucket attracts more reserves than the earlier stage bucket.

Got you. And then just stepping back to the net profitability, the first lien book, you increased that by $400 million. Yet, you took the average reserve per delinquency up on the first lien book. How do you just sort of explain that?

The embedded value number didn't change materially. They're always adjusting based on what we think the latest forecast is, but they didn't change dramatically. I think that the increase in reserve per delinquency is related to the components of our reserving estimate severity, recision estimate, size of the loan, so it wouldn't necessarily be linked. We do have on slide 14 the performance by vintage so you can kind of follow where the various vintages are going in terms of profitability and I think you'll see from the third quarter to the fourth quarter that there has been some improvement in the vintages, which kind of supports the burn out theory even on the worst vintages.

Great. And then just last question on the accounting relative to the reserve to the DTA. If you do come back to profitability, does it get put back on the balance sheet or does it just result in an effective lower tax rate going forward?

Well, it would run through the P&L if it was reversed. Just like it ran through the P&L when we put it up. And that's going to be dependent on our analysis. We're going to have to see -- as we said, we are going to have to see a period of sustained profitability and/or more visibility in terms of the certainty around our future projections. But it would run through the P&L.

So it could happen in all one quarter, to effectively reverse out --

Conceivably. There's no formula for it, but it's conceivable.

Great, thanks guys.

Next is the line of Sam Martini with Omega. Please go ahead.

Hi guys, Good morning. You mentioned the financial guaranty business is poised to be able to make a dividend to the mortgage insurance business during 2011. Can you confirm that that would be sufficient under reasonable scenarios to ensure that you will not be needing to raise additional capital during 2011 or the foreseeable future? Thanks.

That dividend wouldn't impact the need for capital. It's capital that's already counted, but it would be a liquidity improvement for Radian Guaranty. With our strong risk to capital position and our significant liquidity at the holding company, we believe we are in a good position, subject to the uncertainty that still exists but we still believe we're in a strong position capital wise.

If you were to need to raise capital, would you envision that it would bedue to strong business demand?

Sam, we hope that the gain of share back from the FHA as well as potentially -- well, there are various -- many scenarios through the spectrum of scenarios possible from the outcome of Washington decisions, we hope that there are certain outcomes that increase the opportunity to write MI business across a larger LTV scale and if we are writing more business than we anticipated and it's good business like the business you have seen from the chart Bob referred to in terms of the recent book which is profitable, we would love to have that as a driver of the need for more capital for the right reasons. But absent that and absent other --

I guess put differently, you feel good about not needing a defensive capital raise. A capital raise you would anticipate to be offensive if at all?

Based on our projections and our current views we believe we have adequate capital, but we continue to live in an uncertain environment but we hope the way things play out are actually closer to our projections.

Did you see -- I don't believe it was in here, but in new insurance written inJanuary , do you see continued trends that we have seen after your first quarter of new insurance year over year growth in memory, do you see the same continuation of that trend in

The mortgage market is down in January.

I guess in terms of share, if you looked at share.

It's, Sam, very hard to calculate share on a month to month --

As a general rule, we see the share numbers on essentially a quarterly basis. And while we continue to try to get additional data that would give us more clarity around that, to Bob's point the overall mortgage market is down. We would hope that we'll continue to see an increase in MI penetration , but in terms of share right now we don't have any reason to think that that has

And Sam, while we do talk about our market share our actual focus is less on the share number per se and more on continuing to look at opportunities to write as much good profitable business as we can. And that remains our focus in terms of looking to find ways to serve existing customers better, finding opportunities to add new customers and continuing the momentum that we have created in the last couple of years perhaps being one of the few players coming out of the down cycle that's had momentum in adding new customers.

Thanks, guys, good luck.

Thanks.

We have a follow-up from Mike Grasher from Piper Jaffray. Please go ahead.

Thanks very much. Just a couple of quick follow-ups. Bob, first of all, can you share with us some of the assumptions that maybe went into or behind the $1.7 billion in paids?

Yes. It's an expectation that a lot of the late stages will come through. We did qualify it because claims received recently has come down and we're expecting -- in that $1.7 billion thereis an expectation that will come back up again and some of the delays will be cleared. So if they're not it could be lower than $1.7 billion. So I guess the expectation is that more claims come in during 2011 and we certainly have a lot of late-stage defaults that could very well be claimed.

So -- are you -- it's as simple as taking a percentage of the current late-stage defaults, a heavy percentage of those?

Yes, that's where -- it comes from the claims group that looks at the late stage and what typically comes through each month and each quarter. And it's, again, it's a more normalized projection as opposed to what we have seen recently which is a decline in claims received. That's not consistent with the $1.7 billion.

And then S.A., just a quick follow-up around -- you mentioned the private modification programs . I missed your comment, were you suggesting there's been an acceleration or a greater acceptance by banks to provide a program on the private modification

What I was -- the point I was really making is the fact that while HAMP per se in its expected form is playing out less than we expected, there is an unexpected positive factor in that the HAMP -- loans that are coming in as HAMP loans are turning into proprietary modifications. And we see a wide cross-section of services and lenders looking at opportunities to modify borrowers who have the capacity to make payments. And Teresa, I don't know if there's anything --

I was just going to say we have seen for that a while now where the proprietary mods have actually been a larger number than the HAMP modifications. So hopefully that will continue.

Okay. So you don't see that slowing any time soon?

I think that the view is that the opportunities for HAMP mods will continue to sort of decline. But we don't have any reason to think that the proprietary mods will decline at this point.

Okay. Thank you for clarifying.

And our last question will come from the line of Mike Grondahl from Northland Capital Markets. Please go ahead.

Yes. Just two quick follow-ups. Teresa, the first one's for you. I think you mentioned that the master policy allows you to reduce claim payment or amount if a servicer kind of has negligence. Have you ever done that, and sort of how frequently do you do that? And then secondly, if maybe S.A. or Bob could comment, just directionally, on your confidence in that net projected premium excess of $1.5 billion which is marginally higher than $1.3 billion last year. Do you have more confidence in that number a year later, or would you say less confidence? Thank you.

I would first I guess say that given sort of the issues we have seen with some of the claims that have been coming through with respect to underwriting errors, we really haven't had to focus quite as much on servicing issues, although we have been very focused on auditing servicers and looking at servicer practices to make sure that they're handling claims appropriately. I can't give you any sort of view into claims that may have been or what number of claims may have been adjusted on that basis. It's just that with respect to particularly the foreclosure moratorium where it sort of linked to practices of the servicers, it's certainly an option that would be open to us.

Okay.

And Mike, in terms of the confidence in the future, I think we have to say it's slightly less because part of that certainty is -- it's near term and the near term is still uncertain. So we have confidence but on a comparative basis it's slightly less.

Okay.

And ladies and gentlemen, thank you all. I'll turn the conference back over to S.A. Ibrahim for any closing remarks.

I'd like to thank all of you for having participated in our call and with that, we'll see you next quarter. Thanks.

Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for using AT&T Executive Teleconference Service. You may now disconnect.