Posts from the ‘Radian Group (RDN)’ Category

Nov 4

On Barrons on Radian

There was a piece published in Barrons this weekend on Radian Group. Barrons is free this weekend so anyone can access it here. The article. written by Jonathan Laing follows quite closely the arguments written in this SeekingAlpha piece. Honestly, there is so much overlap between the two articles that I would have hoped that the writer of the Barrons piece contacted OliverDavies, who wrote the SeekingAlpha article, before writing his.

In my post, Does Radian Guaranty have a liquidity problem?, I considered most of the arguments made by Barrons and even came up with my own spreadsheet model to see if they were valid I have yet to hear of any major errors in my analysis, and it is an analysis I have went over a number of times since then in order to verify. Thus I remain of the opinion that my analysis is fair and that my conclusion that Radian Guaranty will not run into a liquidity problem absent the drop of another shoe in the housing market.

I have to wonder whether Johnathan Laing ran his own cash flow analysis before publishing his work. Did he create a model that showed Radian Guaranty would run out of cash? I would love to see that model. I am not academic about this argument; if someone can prove me wrong I will sell my stock and move on. I really couldn’t care less whether I am right or not, I only want to make money on the opportunity. Read more

Oct 1

Week 65: Doing the work

Portfolio Performance

The turn in housing

– Michael Burry – Scion Capital

The housing market has turned.

Being that it is a huge, lumbering tanker, it takes a long time to slow down and redirect. The changes happen slowly enough that you can miss them if you are focused on the wrong details (price increases and to a lessor degree sales increases) and not enough on the right one’s (inventory). All that matters is that prices are cheap, rates are low, and inventory has come down to levels that leave many cities firmly entrenched as sellers markets. Once buyers stop seeing themselves in the drivers seat, their attitude changes from one of waiting for a better buy to that of getting in before its too late. The vicious circle is replaced by a virtuous one, and sales and price increases will follow. Nothing lasts forever, and the US housing collapse didn’t either.

Falling inventories had to lead the housing turnaround, and that is what we are seeing now. Nationwide in August housing inventories fell from 8.2 months of supply a year ago to 6.1 last month.

Sep 26

1 Comment

Does Radian Guaranty have a liquidity problem?

A couple of weeks ago a Seeking Alpha article was published that highlighted some problems on the horizon for Radian Group (RDN). The article was excellent and it introduced me to the idea of liquidity risk at a mortgage insurance subsidiary. That led me into a much more detailed investigation of the Radian Guaranty insurance subsidiary, which I will discuss below.

The liquidity of an insurance sub

Before getting into the issues specific to Radian, let’s talk a bit about liquidity risk. For some reason liquidity is not at the forefront of discussion during conference calls and in brokerage reports on mortgage insurance companies. Questions and comments focus on risk to capital ratios and loan loss reserve methodologies, which, while providing important clues, do not in themselves allow you to conclude whether a company will have the cash available to pay the claims. The author of the SeekingAlpha article, Darren Oliver, suggested that this was because the mortgage insurance industry is not very well understood. This could be the case, I don’t know. I just find it surprising.

As a mortgage insurer, the bottom line is that you have the cash available to pay claims and that the regulator who watches over you believes that this is the case. Over time, the cash and short term investments on hand plus the premiums paid need to be enough to pay out claims made as well as operating expenses incurred. If there is a concern that the cash and future premiums will not be enough to cover the expected claims, the insurer will either be taken over by the regulator or put into run off.

Sep 13

Taking some profits with Radian Group and MGIC

I took some of my position in Radian Group and MGIC off the table yesterday. I sold half of my position in MGIC and about 30% of my position in Radian.

The stocks have moved quite a lot in a short period of time. I was buying MGIC at under 80 cents a month ago. I bought Radian in the mid-$2’s in July. These are pretty big moves.

The fundamentals behind the stocks are improving. My thesis that the housing market is bottoming is showing more evidence of playing out. Delinquencies are falling, foreclosure rates are falling.

Yet while I remain optimistic that they can outrun their legacy book, the possibility remains that they won’t.

There were a couple of events today that outlined that uncertainty.