Radian Group is entering the conduit business with the launch of Radian Mortgage Capital, which will aggregate loans to be securitized in the private label market.
This business is an extension of what
"We will not do subprime loans," he added. "Our focus is on high quality loans where we can evaluate the credit and leverage our expertise."
Radian Group had been in the private-label securitization area before, when it owned Clayton Services, a due diligence provider
But that is a different side of the non-agency market from this new business, which will be a PLS issuer, Thornberry pointed out.
"We really see us as an extension of our current strategy related to mortgage credit risk management and our ability to aggregate that risk now through loans as well as through insurance," he said. "And to manage that risk and to distribute that risk into the secondary market much like we do on the insurance side."
Jumbo mortgages make up a significant portion of the non-agency market. However, an 18.5% increase in the conforming loan limit took a big chunk out of first quarter jumbo volume, with January originations alone
Radian will also take a role in distributing the securities to investors. The company has the option to retain and manage structured components of the underlying credit risk, which is where it sees value.
"One thing I learned many years ago is diversification of liquidity is key and essential," Thornberry said. "We will evaluate and develop multiple outlets for the loans that we aggregate."
The company was hearing from its MI customers as well as clients of homegenius, its real estate data arm, about the need for alternative secondary market options for the high quality loans that they originate.
Radian's "inherent core competency" is in evaluating and pricing mortgage credit risk, which makes it "uniquely positioned to help current customers looking for secondary market alternatives, Thornberry said.
The secondary market for high quality non-agency loans is competitive. "We believe our ability to leverage our deep analytics, our credit risk management expertise and our understanding of credit risk enables us to really find value in the marketplace and find those opportunities to work with lenders and hopefully improve their execution either from a pricing point of view or an efficiency point of view," Thornberry said.
But Thornberry does not view this as an opportunity to expand its mortgage insurance footprint into non-agency, which typically does not require credit enhancement for loans with down payments of less than 20%.
Radian Mortgage Credit will be overseen by Derek Brummer, the president of its mortgage operations.
"We're well positioned to do this given our history of deep analytics and proprietary analytics and our understanding of pricing mortgage credit risk, along with our ability to underwrite mortgage credit risk," Thornberry said.
