Radian Group of Philadelphia has created a subsidiary that plans to insure unconventional types of loans.
Radian Insurance is to sell credit enhancement for manufactured-housing loans, home equity lines of credit, second mortgages, and first mortgages with balances that exceed the homes value.
Frank P. Filipps, Radian Groups chairman and chief executive officer, said in a statement that the subsidiary will enable us to move into new market segments that are tangential to our current business and consistent with our profitability goals and credit standards.
The insurance units coverage will help lenders reduce costs when they securitize these nontraditional types of loans, he said.
Radian Group had to set up a unit to do this because Pennsylvania insurance regulations prohibit its main operating subsidiary, Radian Guaranty Inc., from insuring alternative credit products.
The bread and butter of Radian and other private mortgage insurers is covering the default risk on conventional mortgages with low down payments. Fannie Mae and Freddie Mac, the two big government-sponsored mortgage buyers, cannot buy loans with down payments of less than 20% without some kind of credit enhancement.
Other private insurers have been delving into alternative products lately. Last week Triad Guaranty Insurance Corp. said it would insure shared-appreciation mortgages, which offer the borrower a lower interest rate in return for a share of the profit when the house is sold. National Commerce Bancorp is to originate the loans, and Bear, Stearns & Co. will securitize them.
Darryl W. Thompson, president and CEO of Triad, said shared-appreciation mortgages are an old concept but that Triads program breaks ground by enabling the lender to make them with very high loan-to-value ratios.
Mortgage insurers are following their customers, the lenders, into these nontraditional product areas, Mr. Thompson said. The old vanilla of doing only A class mortgages is probably behind us, he said. If youre going to serve your customers, you have to do more than just that.
Standard & Poors has rated Radians new unit AA, and Moodys Investors Service has rated it Aa3.
