Radian Announces Settlement Agreement with CFPB Related to Legacy Captive Reinsurance Arrangements

Settlement ends five-year federal investigation

PHILADELPHIA–(BUSINESS WIRE)– Radian Guaranty Inc., the mortgage insurance subsidiary of Radian Group Inc. (NYS: RDN) , today announced that it has reached a settlement agreement with the Consumer Financial Protection Bureau (CFPB) to resolve a previously disclosed federal investigation of the company’s participation in captive reinsurance arrangements. As part of this settlement, which was filed earlier today in the U.S. District Court for the Southern District of Florida, Radian agreed not to enter into new captive reinsurance arrangements for a period of ten years and to pay a civil penalty of $3.75 million.

Radian has not entered into any new captive reinsurance arrangements since 2007. In the past, Radian and other private mortgage insurers entered into captive arrangements pursuant to which affiliates of mortgage lenders reinsured a portion of the risk originated by the lenders (and insured by us) in return for a portion of the mortgage insurance premiums that would have been paid to us. Radian relied on long-standing, written guidance from the U.S. Department of Housing and Urban Development (HUD) in structuring these captive reinsurance agreements and on analyses and opinions of reputable actuarial firms that the terms of Radian’s reinsurance agreements met HUD‘s standards. During the high-claim years that followed the most recent economic downturn, captive arrangements have proven to represent a critical component of the Company’s loss mitigation strategy, effectively serving as designed to protect our capital position during a period of stressed losses. As of December 31, 2012, we had received total cash reinsurance recoveries from these captive reinsurance arrangements of approximately $750 million.

Notwithstanding these facts, since 2008, HUD has been pursuing an investigation into the captive reinsurance arrangements of private mortgage insurers, including Radian, to determine whether these arrangements constituted an unlawful payment under the federal Real Estate Settlement Procedures Act (RESPA). This investigation was transferred to the CFPB in 2011 by the enactment of the Dodd-Frank legislation. The settlement agreement announced today, which remains subject to Court approval, will conclude the CFPB‘s investigation with respect to Radian without the CFPB making any findings of wrongdoing in its investigation or in the settlement.

“We are pleased to put this behind us,” stated Teresa Bryce Bazemore, president of Radian Guaranty. “While we believe our captive arrangements complied with RESPA and caused no harm to consumers, this settlement was an opportunity to eliminate distractions at an acceptable cost so that we can continue our primary focus of writing new, profitable mortgage insurance and helping …read more

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