RADIAN GROUP INC

We are a mortgage and real estate company with one reportable business segment—Mortgage Insurance.

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 other immaterial businesses are reported collectively as All Other and include our Mortgage Conduit, Title, Real Estate Services and Real Estate Technology businesses, which provide our existing and new customers with an array of products and services across the residential real estate and mortgage finance industries.

As a mortgage and real estate company, our business results are subject to seasonal fluctuations impacting mortgage and real estate markets, as well as 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. Among others, and as discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” 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 political and geopolitical events. See “Item 1A. Risk Factors” for a discussion of material risks that could impact our business results.

In recent years, including 2024, our financial performance and results have benefited from generally favorable macroeconomic conditions, including most notably:

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Strong Credit Environment and Housing Market – 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. The housing shortage combined with strong market demand has resulted in strong home appreciation in recent years, leading to low paid claim volumes and loss severities in our Mortgage Insurance business. Further, the embedded equity borrowers have in their homes as a result of this home price appreciation is a factor that is positively impacting our loan default and Cure trends. 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 continue to benefit our IIF. The combination of stable and low levels of unemployment and positive home price appreciation has resulted in favorable loss reserve development on prior period defaults, which has positively impacted our financial results in recent periods. See Note 11 of Notes to Consolidated Financial Statements for additional information on our reserve for losses.

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Elevated Interest Rates, Resulting in Higher Persistency due to Low Levels of Mortgage Refinancings – Following a period of historically low interest rates, mortgage interest rates rose sharply and significantly in 2022 driven by aggressive monetary policy changes by the U.S. Federal Reserve in an effort to curb rising inflation. Since that time, mortgage interest rates have remained elevated. 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. At the same time, the higher interest rate environment 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. Although in recent years the inflationary pressures and higher interest rate environment have negatively impacted U.S. housing market affordability and broadly reduced 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.

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Improvements in Mortgage Finance System and Mortgage Insurance Fundamentals – 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. While changes in the PMIERs, business practices of the GSEs or the strategic direction of U.S. housing finance set by new government administrations can impact our businesses and financial performance, in recent years the stable and supportive regulatory environment has benefited our results.

The macroeconomic conditions and other factors discussed above influence the size of the overall mortgage origination market, which in turn significantly impacts our mortgage and real estate businesses. Private mortgage insurance penetration of the overall mortgage market further impacts our results and has generally been higher on new mortgages for purchased homes than on the refinance of existing mortgages because average LTVs are typically higher on home purchases, and therefore, these lower down payment loans are more likely to require mortgage insurance. The penetration percentage of private mortgage insurance is mainly influenced by: (i) the competitiveness of private mortgage insurance for GSE conforming loans compared to FHA and VA insured loans and (ii) the relative percentage of mortgage originations that are for purchased homes versus refinances. Radian Guaranty’s share of the private mortgage insurance market is also influenced by competition in that market.

The following charts provide a perspective on mortgage origination volumes and private mortgage insurance penetration in recent periods.

Mortgage origination market (1)

Private mortgage insurance penetration of mortgage origination market (1)

(1)

Based on actual dollars generated in the credit enhanced market as reported by HUD and publicly reported industry information. Mortgage originations are based upon the average of originations reported by the Mortgage Bankers Association, Freddie Mac and Fannie Mae in their most recent published industry reports.

Although it is difficult to project future volumes, recent industry projections for 2025 estimate total mortgage originations of approximately $2.0 trillion, which would represent an increase in the total annual mortgage origination market of approximately 14% as compared to 2024.

Factoring in our projections of private mortgage insurance penetration in the overall insurable mortgage market, we estimate that the private mortgage insurance market will be slightly larger in 2025 as compared to a reported market of approximately $300 billion in 2024. There is an industry-wide consensus that we should expect a healthy purchase market in 2025 driven by ongoing homebuyer demand and a potential modest decline in interest rates that we expect to benefit affordability for potential homebuyers. A healthy purchase market is a positive for mortgage insurers given the higher likelihood that purchase loans will utilize private mortgage insurance as compared to refinance loans. This outlook also anticipates that a decrease in interest rates would result in an increase in refinance originations in 2025.

See Note 4 of Notes to Consolidated Financial Statements for additional information about our businesses. See “Key Factors Affecting Our Results” and “Mortgage Insurance Portfolio Metrics” below for additional discussion on specific key drivers that affect our performance.