Radian Group Inc.RDN

Morningstar Rating

Stock Research and Analysis

by Jim Ryan

Mortgage insurance has historically been a business with competitive advantages, in our view. Despite the outsize returns of the past few cycles, few competitors have sought to enter the market. Significant barriers to entry include acquiring the expertise, Read more

Bulls Say

The subprime mortgage debacle is making lenders rethink the value of mortgage insurance, which should help Radian write more business.

The firm has consistently earned high profit margins. Its net margin has averaged 24% since 1993.

Radian is America's third-largest mortgage insurer, boasting about 15% market share.

Radian has wisely chosen to contribute unused capital from the financial guaranty company to mortgage insurance operations. Read more

Bears Say

The company insures a higher proportion of risky mortgages than competitors, including mortgages for borrowers with poor credit and second mortgages. The extra premium Radian charges may not offset higher expected losses.

Customers are concerned about Radian's financial vulnerability. Market share will fall as more competitors reap the benefits.

Radian has consistently underestimated mortgage insurance claims. As adjustable-rate mortgages reset in the coming years, claims will go through the roof.

The rating agencies continue to drop insurance financial strength ratings--not a good sign for future business. Read more

Strategy

Radian has assembled a uniquely diversified credit-enhancement platform to service the converging mortgage and financial guaranty markets. Its diversified risk portfolio spreads credit exposure across Read more

Management

We hold management accountable for most of the bad decisions that have diminished the value of Radian. Management bet the company on some pretty risky business--net interest margin securities and second mortgages, in particular--and lost. We also think Read more

Profile

Radian uses its investment-grade credit rating to guarantee financial obligations. Its mortgage guaranty segment offers private mortgage insurance, which protects lenders Read more

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