We've been wanting to revisit our enduring love of Radian for sometime now. Over the weekend Barron's wrote an article "Is Radian a House of Cards?", so we just can't put this off any longer.
Experienced money managers put millions of dollars to work without having the facts straight, so we weren't surprised when a young blogger made several factual errors in a Seeking Alpha Blog Post some weeks ago. In that context it also shouldn't be surprising that a well regarded publication makes the same mistakes in their effort to create this week's 50 inches of text.
It's curious though that both made the mistake of saying Radian was increasing upfront premium business in an attempt to hoard cash at any cost. The number unequivocally say otherwise. So does S.A. Ibrahim on the last two conference calls when he has explained that the shift to monthly premium business is the result of pricing and sales incentive changes that reflect Radian management's view that interest rates and refinancing may have finally bottomed.
The Seeking Alpha Blog took the time to explain how denials will be overturned in waves once an initial 12 month waiting period runs out. This is the opposite of reality in which denials can typically only be overturned within 12 months. Barron's is not quite as egregious, noting that "[Denials] represent claims on which paperwork was missing. They are typically reinstated months later and then approved." Oh missing paperwork. Let's just go back to the file and get it.
Have we forgotten how all of these loans were underwritten? Have we forgotten how to spell MERS? If you think Radian is going to accept robo-signed paperwork dated four years after a loan was underwitten, you had better pass whatever you are smoking over here. And as for typically being reinstated and approved months later, Radian published it's denial reinstatement rate going back to 1Q07. A total of five (5) had reinstatement rates over 50%. What's typical about that?
Speaking of vocabulary, Barron's describes Radian Asset as "double-pledged" against it's own policies and those of Radian Guaranty. This is actually known as stacked subsidiaries in corporate finance and it is not illegal for banks to own subsidiaries, in fact it is common. Under this definition in fact any Bank Holding Company (or any holding company) debt or TRUPS would be backed by the "double-pledged" assets that also back operating company deposits.
Listen to Barron's: Radian can deny claims based off missing paperwork that never existed. The fix is in, Radian is solvent. The bigger question for the company now is housing finance reform, including QRM.