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Radian Group Gives False Hope to Banks


Comments spurring a rally, but on shaky ground.

Editor's Note: The following was posted on the Buzz & Banter in real-time at 1:20 pm. It is being shared here for the benefit of the Minyanville community.

For those wondering the reasons big rip in the big banks and PMI players, it's because of the comments Radian Group (RDN) made on its conference call this morning. The company said it saw a significant decrease in early default activity in its 2009 vintage mortgage business because of improved underwriting. Improved underwriting... imagine that!

The company also said its 2008 book is showing a turn (a.k.a. not having to pay out as much insurance for foreclosures). This shouldn't be too much of a surprise because its worst exposure was in 2005 through early 2008 subprime. That has already been flushed down the toilet. Hence it's benefiting from improved underwriting.

The extrapolation by the market is that the banks and other mortgage players with big mortgage exposure are not going to suffer as much in losses as have been modeled in. Given that back in 2007 RDN and its brethren had perhaps the most whistling past the graveyard, rose colored goggle wearing, Kool-Aid drinking attitude of any group of companies I have ever seen... I can't help but express a little skepticism about its comments translating into blue skies for housing loss mitigation. Maybe the company has finally found religion... who knows.

There was a lot of negative built into the PMI names and they can now likely raise capital to survive and fight another day.

This is also why AIG (AIG) is having a McRipper rally today. It has exposure in the PMI space and obviously to mortgages in general.
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