Radian Announces Settlement Agreement with CFPB Related to Legacy Captive Reinsurance Arrangements
April 04 2013 - 12:28PM
Business Wire
Radian Guaranty Inc., the mortgage insurance subsidiary of
Radian Group Inc. (NYSE: 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 low down-payment borrowers realize the dream of
homeownership,” Ms. Bazemore said.
As previously disclosed, we and other mortgage insurers remain
subject to an investigation by the Minnesota Department of Commerce
relating to our captive reinsurance arrangements, and we are
currently facing private lawsuits alleging, among other things,
that our captive reinsurance arrangements constitute unlawful
payments to mortgage lenders under RESPA. We intend to vigorously
defend the company in this investigation and against these
claims.
About Radian
Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia,
provides private mortgage insurance and related risk mitigation
products and services to mortgage lenders nationwide through its
principal operating subsidiary, Radian Guaranty Inc. These services
help promote and preserve homeownership opportunities for
homebuyers, while protecting lenders from default-related losses on
residential first mortgages and facilitating the sale of
low-downpayment mortgages in the secondary market. Additional
information may be found at www.radian.biz.
Forward-looking Statements
Some of the statements in this press release may constitute
“forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, Section 21E of the Securities and
Exchange Act of 1934 and the United States Private Securities
Litigation Reform Act of 1995. Words such as "will," "expects,"
"believes" and similar expressions are used to identify these
forward-looking statements. These forward-looking statements, which
may include without limitation, projections regarding our future
performance and financial condition, are made on the basis of
management’s current views and assumptions with respect to future
events. Any forward-looking statement is not a guarantee of future
performance and actual results could differ materially from those
contained in the forward-looking statement. The forward-looking
statements, as well as our prospects as a whole, are subject to
risks and uncertainties, including, without limitation, the
possibility that our settlement agreement with the CFPB may not
receive court approval and that we may be unable to successfully
defend our remaining outstanding, and any potential future,
investigations and litigation relating to captive reinsurance
arrangements under RESPA. Any forward-looking statements speak only
as of the date they were made, and we undertake no obligation to
publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. We
operate in a changing environment. New risks emerge from time to
time and it is not possible for us to predict all risks that may
affect us. For more information regarding these risks and
uncertainties as well as certain additional risks that we face, you
should refer to the Risk Factors detailed in Item 1A of Part I of
our Annual Report on Form 10-K for the year ended December 31, 2012
and subsequent reports and registration statements filed from time
to time with the Securities and Exchange Commission.
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