RADIAN GROUP INC

We are a mortgage and real estate company with two reportable business segments—Mortgage Insurance and homegenius.

Our Mortgage Insurance segment aggregates, manages and distributes U.S. mortgage credit risk for the benefit of mortgage lending institutions and mortgage credit investors, principally through private mortgage insurance on residential first-lien mortgage loans, and also offers other credit risk management solutions, including contract underwriting, to our customers. Our homegenius segment offers an array of title, real estate and real estate technology products and services primarily to consumers, mortgage lenders, mortgage and real estate investors, the GSEs, real estate brokers and agents, and corporations for their employees.

See Note 4 of Notes to Consolidated Financial Statements for additional information about our businesses. See “Key Factors Affecting Our Results” below for information about the key drivers that affect our performance.

Current Operating Environment

As a mortgage and real estate company, our business results are subject to macroeconomic conditions and specific events that impact the housing, housing finance and residential real estate markets and the credit performance of our mortgage insurance portfolio, as well as seasonal fluctuations impacting mortgage and real estate markets. Among others, these factors may include home prices and housing supply, inflationary pressures, interest rate changes, unemployment levels, the volume of mortgage originations and the availability of credit, national and regional economic conditions, legislative and regulatory developments and other events, including macroeconomic stresses and uncertainties resulting from global conflicts and other geopolitical events. See “Item 1A. Risk Factors” for a discussion of material risks that could impact our business results.

As further discussed below, the following economic and market conditions represent the primary factors affecting the current operating environment for our businesses.

Inflationary Pressures and Elevated Interest Rates. Annual inflation in the U.S. reached a 40-year high in 2022. To reduce inflation, the U.S. Federal Reserve has increased interest rates significantly since 2021, resulting in a sharp and

Table of ContentsGlossaryPart II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

significant increase in mortgage interest rates. Among other negative impacts on our business, these macroeconomic conditions have reduced the overall volume of mortgage transactions taking place, which in turn, has reduced the amount of NIW we are writing. Conversely, the higher interest rate environment also has benefited our financial performance through higher Persistency Rates, which has resulted in continued growth in our IIF despite lower NIW, as well as through the recognition of higher net investment income. More recently, mortgage rates have decreased from their peak in the third quarter of 2023, and with inflation beginning to moderate, the U.S. Federal Reserve has indicated that it could begin to reduce interest rates in 2024. Although in recent years the inflationary pressures and higher interest rate environment discussed above have negatively impacted the U.S. housing market, including broadly reducing refinance activity, longer-term, we continue to believe that the housing market fundamentals and outlook remain favorable, including demographics supporting growth in the population of first-time homebuyers and a constrained supply of homes available for sale with available homes near historical lows. See “Mortgage Insurance Portfolio” for additional details on our NIW and IIF. The same inflationary pressures and interest rate environment discussed above have also negatively impacted our homegenius businesses, due primarily to the rapid decline in industry-wide purchase and refinance volumes, which has resulted in a continued decline in homegenius revenues since the beginning of 2022 and ongoing losses for that business segment.

Home Price Appreciation and Limited Housing Supply. Our mortgage insurance business generally benefits from increases in housing demand, home prices and the volume of home purchases, all of which are influenced by the current market imbalance between a constrained housing supply and strong market demand. While the housing shortage combined with strong market demand has created affordability challenges for many first-time homebuyers, the same dynamic benefits our existing insurance written by mitigating against the risks of loss to us associated with a decrease in home values. As a result, paid claim volumes and severity in our mortgage insurance business have been positively affected by the current environment. Further, as discussed below, we believe the embedded equity borrowers have in their homes as a result of strong home price appreciation in recent years is a factor that is positively impacting our loan default and Cure trends, and importantly, the strong demographics supporting continued demand from first-time homebuyers are likely to continue to support home prices and drive further growth in purchase originations that is expected to grow our IIF. See “Mortgage Insurance Portfolio—New Insurance Written” for expectations on mortgage origination volumes.

Strong Credit Environment, Positively Impacting Default and Cure Trends. In 2020, the onset of the COVID-19 pandemic resulted in a significant increase in unemployment and had a negative impact on the economy. As a result, we experienced a material increase in new defaults beginning in the second quarter of 2020, substantially all of which related to loans subject to mortgage forbearance programs implemented in response to the COVID-19 pandemic. This increase in new defaults resulted in an increase in our reserve for losses and had a negative effect on our results of operations for that year. Since 2020 and continuing through December 31, 2023, subsequent trends in Cures have been more favorable than original expectations, resulting in favorable loss reserve development in 2022 and 2023 on prior period defaults due to stable and low levels of unemployment and the strong home price appreciation in recent years. As of December 31, 2023, based on a home price index-based approach using industry averages, we estimate that 86% of our total IIF had at least 10% embedded equity and 82% of defaulted loans had at least 20% embedded equity. The significant embedded equity that borrowers in our insured portfolio have in their homes has helped to mitigate our risk of loss by decreasing both the frequency and severity of our paid claims. These positive trends have also contributed to a higher rate of claims that result in no ultimate loss and that are withdrawn by servicers as a result. While the recent credit and housing trends have been favorable, the number of defaults that ultimately result in claims in the future is difficult to predict and will depend on a variety of factors, including the overall economic environment and the natural seasoning of our growing IIF portfolio. See Note 11 of Notes to Consolidated Financial Statements for additional information on our reserve for losses.

Improvements in Mortgage Finance System and Mortgage Insurance Fundamentals. Despite risks and uncertainties, we believe that mortgage industry fundamentals remain strong and have benefited from improvements to the mortgage and real estate ecosystem since the great financial crisis in 2008, including more stringent underwriting and product standards, higher-quality borrowers with strong credit profiles and strengthened servicing standards and government support to help borrowers stay in their homes. In addition, enhancements in the mortgage insurance industry since the great financial crisis in 2008, including the implementation of strong capital and operating standards under the PMIERs, the implementation of greater risk-based granularity into our pricing methodologies and the increased use of risk distribution strategies to lower the risk profile and financial volatility of our mortgage insurance portfolio, have increased returns on our NIW, provided capital relief under the PMIERs and have helped position our mortgage insurance business to better withstand the negative effects from macroeconomic stresses discussed above, including those resulting from the higher rates of inflation and higher interest rates, as well as the other risks described in “Item 1A. Risk Factors.”

Our current business structure is highly dependent on the GSEs, as the GSEs are the primary beneficiaries of most of our mortgage insurance policies, and mortgage insurers such as Radian Guaranty must meet the GSEs’ eligibility requirements to be eligible to insure loans purchased by the GSEs. The FHFA and GSEs have significant discretion under the PMIERs and may amend the PMIERs at any time. Changes in the PMIERs or business practices of the GSEs can significantly impact our business. In addition, our businesses operate within the housing finance system and a change in government administrations can significantly alter the strategic direction of housing finance in the U.S. and impact our businesses and financial performance. Our businesses are subject to and may be impacted by many federal and state lending, insurance and consumer laws and regulations. See “Item 1. Business—Regulation.”