Feb 24, 2009
Executives
Terri Williams-Perry – IR Specialist S.A. Ibrahim – CEO Bob Quint – EVP and CFO Teresa Bryce – President, Radian Guaranty Inc.
Scott Theobald – EVP and Chief Risk Officer, Radian Guaranty Inc.
Analysts
Steve Stelmach -- FBR Capital Markets Mike Grasher -- Piper Jaffray Mark DeVries -- Barclays Capital Donna Halverstadt -- Goldman Sachs Brian Monteleone [ph] -- Barclays Capital George Urban [ph] – RBS
Operator
Ladies and gentlemen, thank you for standing by. Welcome to Radian’s Fourth Quarter 2008 Earnings Conference Call.
At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.
(Operator instructions) And as a reminder, this conference is being recorded. I would now turn the conference over to Ms.
Terri Williams-Perry of Investor Relations. Please go ahead.
Terri Williams-Perry
Good morning, and welcome to Radian’s fourth quarter 2008 conference call. By now you should have all received our press release, which contains the financial results for the quarter.
If you have not yet received this, you may obtain it from our Investor Relations website at www.radian.biz. During this morning’s call, you will receive prepared remarks from S.A.
Ibrahim, Radian’s Chief Executive Officer; Bob Quint, Chief Financial Officer; and, Teresa Bryce, President of Radian Guaranty. Also on hand for the Q&A portion of the call are Dave Beidler, President of Radian Asset Assurance; and, Scott Theobald, Executive Vice President and Chief Risk Officer of Radian Guaranty.
Before we begin with our prepared remarks, I would like to remind you that any forward-looking statements that we make this morning should be considered in conjunction with the cautionary statements set forth in the Safe Harbor statement included with our webcast slides and update risk factors detailed in our Form 8-K filed this morning. The webcast slides and Form 8-K are available on our Investor Relations website.
I would now turn the call over to S.A.
S.A. Ibrahim
Thank you, Terri, and good morning. I will open today with an overview of this quarter’s financial results and I will then update you on our capital and liquidity positions and our business operations.
I will close with a commentary on industry trends and an overview of the external environment. Bob will follow me with a detailed financial review and Teresa will provide an update on our core Mortgage Insurance business and the steps we are taking to help us get through this difficult period and to best position the business for the future.
We will then open the call to your questions. Beginning with our earnings, earlier today we reported a fourth quarter net loss of $250.4 million, or $3.11 per share.
Our results were largely impacted by our mortgage loss provision – Mortgage Insurance loss provision of $551 million, reflecting higher delinquency comps and a fair value loss of $218 million caused by widening corporate spreads. These results were offset by a significant reduction in the premium deficiency reserve.
Bob will provide further details in a few moments. Our book value at the end of the end of the quarter was $25.06 and we had cash and investments of $6.1 billion.
In our Mortgage Insurance business, we have $5.2 billion in claims paying resources. We told you last quarter that we were focusing on reducing our credit risk exposure in Financial Guaranty.
In the fourth quarter, we were successful in advancing this objective as well as in reducing certain non-traditional Mortgage Insurance exposures such as international and second liens. Moving on to the update, I would like to address four important items on the call this morning – our capital position and how Financial Guaranty continues to serve as an important source; our liquidity position; our core Mortgage Insurance franchise.
Before I discuss and liquidity position, I would like to briefly comment on the recent action by Moody’s on all U.S. mortgage insurance companies.
As we stated in our February 13th press release, Radian Guaranty is a longstanding approved mortgage insurers to the GSEs. And we currently do not expect any change to our ability to insure loans that are sold either Fannie Mae or Freddie Mac.
In our view, the GSEs appear to have moved away from placing primary reliance on ratings and have been increasing their own ongoing assessments of MI companies’ capital, financial, credit, and franchise positions. Meanwhile, the reaction from our customers is ‘business as usual.’
Additionally, we are encouraged by recent government actions as part of the Homeowner Affordability and Stability Plan. The mortgage insurance industry continues to play a significant role in the recovery of the U.S.
housing industry. Also, importantly, while we and our industry experienced a difficult fourth quarter, we remain adequately capitalized and with a strong market position.
Although there are no guarantees in this environment, as we focus on executing our 2009 business plan, we believe that we can write new mortgage insurance business throughout the year while maintaining a risk to capital level below 25:1. Our Financial Guaranty business continues to serve as an important source of capital support for our mortgage insurance business, and is expected to provide our core MI operations with cash infusions over time.
Given the challenging environment, we have seen some deterioration in credit performance in our Financial Guaranty portfolio. This has resulted in some booked losses in the quarter, which Bob will detail later.
However, two key points should be kept in mind when looking at our Financial Guaranty portfolio. First, on a relative basis, our portfolio continues to perform better than many other financial guaranty peers because we have proportionally a significantly lower exposure to impaired mortgage-backed asset classes.
Second, on an absolute basis, while you should note that we have only recognized $965 million in statutory capital for the purpose of calculating our MI risk to capital ratio, we have a total of $2.8 billion in claims paying resources in our Financial Guaranty business. Our Financial Guaranty priorities remain unchanged from last quarter - to monitor and actively mitigate credit risks, and to seek and take advantage of opportunities to reduce our insurance in force.
Turning to liquidity, we continue to believe that we have adequate liquidity to pay all future claims in the MI business for the next three years without including any of the Financial Guaranty capital. And beyond that we expect our Financial Guaranty capital will further contribute to our Mortgage Insurance liquidity position over time.
Radian remains uniquely positioned to access this asset as a source of capital. We have strong cash reserves at the holding company.
In December, we amended our credit agreement by limiting the scope of certain covenants, including net worth and by eliminating the debt to total capitalization covenant. Our proactive approach to negotiating with our bank partners illustrate the importance we attach to managing our liquidity risk.
Our investment in Sherman Financial continues to be a source of additional liquidity and a potential source of additional capital. We received $6 million or dividends from Sherman in January, and $35.5 million in 2008.
We remain wholly committed to our Mortgage Insurance business and to writing high-quality new insurance. As evidence of this, our fourth quarter new insurance written was $5 billion, 99.6% of which was prime business.
New insurance written for all of 2008 totaled $32.5 billion and 94.1% was prime, demonstrating our continued high quality and stable market share. Our 2008 book is expected to be profitable and we believe that our strong market presence enhanced by recent additions to our sales force, technology, and infrastructure investments, positions us to benefit when the market recovers.
Our Mortgage Insurance priorities are; to actively manage our claims and mitigate our losses, to originate high-quality and professional new business, and to invest where appropriate in enhancing our franchise by diversifying our customer base and strengthening our technology and infrastructure. In reviewing the past two years, Radian has adapted to a challenging market environment.
I am appreciative of our team members who remain diligent to committed through these difficult times. We continue to benefit from the conscious decisions we made to refocus our Financial Guaranty business and to limit our exposure to the structured mortgage backed asset classes.
Above all, I am pleased with our success in writing and executing a completely new play book for our Mortgage Insurance business with a new team and a move to a more traditional high-quality focus. Having said all that, we face a challenging and uncertain economic environment with poor visibility regarding the remaining duration and future intensity of the housing and credit downturn.
In such an environment, it is difficult, if not impossible, to make bold and confident statements about future profitability and capital adequacy. Therefore, we must remain open and focused on exploring capital strengthening alternatives.
The adequacy of our capital in terms of supporting new insurance written in the future will be driven most significantly by three factors – the economic environment, including the government’s efforts to stabilize the housing market limit increases in unemployment, and ensure our financial institutions to ultimately move us towards a recovery; our ability to access new capital either from investors or the government; and lastly, Financial Guaranty’s continued ability to serve as an important source of capital to support our Mortgage Insurance business. We at Radian, Teresa; Paul Bognanno, our Chairman of Radian Guaranty; and myself are fully engaged in working with others in the industry, meeting with government officials and monitoring developments.
We are encouraged by our assessment that Congressional leaders and the new administration are working to direct capital flows into the housing markets. This is clearly evident in the Home Ownership Affordability and Stability Plan that was announced last week by the Obama administration.
The plan is intended to support millions of families to restructure or refinance their mortgages to avoid foreclosure. This will occur through comprehensive refinance and loan modification programs.
We are supportive of the plan and will continue to work closely with the U.S. Treasury, FHFA, the GSEs and with our lending and servicing partners to stem home foreclosures.
The private mortgage industry is a vital component of the U.S. housing financial system and remains an essential building block for a return to a vibrant U.S.
housing market. This view is widely shared by mortgage banking industry leaders and was echoed in a statement from FHFA Director Lockhart last week.
We are extremely encourage by Director Lockhart’s strong call for government capital injections to mortgage insurance companies. I will now turn the call over to Bob.
Bob Quint
Thank you, S. A.
I will be updating you on the P&L activity trends for the fourth quarter of 2008 and our financial position as of December 31st, 2008. In the second quarter, we booked GAAP premium deficiency reserve on our entire domestic first lien mortgage insurance book.
We’ve update this analysis for the fourth quarter, which results in no first lien PDR as of 12/31/08 and a net reduction of the $150 million liability in the fourth quarter. Clearly, the macroeconomic factors we’ve considered in the past such as unemployment and HPA will be worse than what we had been expecting.
However, actual claims to-date have been consistently lower than what we have been projecting. As we’ve mentioned in the past, there is uncertainty with regard to future losses including both the potential negative impact of further macroeconomic events and a potential positive impact of government and (inaudible) action aimed at reducing foreclosures and stabilizing the credit market.
We believe that future losses in our portfolio will be less sensitive to further HPA declines and more sensitive to unemployment. Our analysis this quarter includes a loss forecast that is based on recent loss trends and provides what we believe is a reasonable estimate of future losses in this uncertain environment.
It does not project unemployment and HPA per se but incorporates the negative results we are experiencing as a result of the macroeconomic stress and allows for these trends to worsen throughout 2009. The results of these projections are presented on webcast slide number nine.
Please note that the over claim frequency in the current book of business is estimated to be 15.35. Expenses for the quarter contain a $12 million reclassification from operating expenses to loss and loss adjustment expenses that represents the cost related to our loss management activities.
We believe we are now reporting this expense consistently with the rest of the industry. Our MI loss provision of $551 million this quarter reflects the higher delinquency counts, partially offset by recoverables from the (inaudible).
Our paid claims were $240 million consisting of $195 million first liens and $45 million of second liens. Claims continue to be significantly lower than expectations even in the short term reflecting the Radian Loss Management Group’s heightened effort to review more claims, and we believe reflecting the efforts by servicers to modify loans and the foreclosure forbearance initiative.
Looking forward into 2009, we expect the claims payable will be approximately $270 million in the first quarter and a range to $1.4 billion to $1.7 billion for the year, with the understanding that any claim projections in this environment are very difficult. Our MI loss reserves at 12/31/08 were just under $3 billion.
We continue to expect the number of delinquencies to increase significantly in 2009. With regard to NIMS our current risk in force is $438 million and the updated total balance sheet liability on NIMS is approximately $240 million.
Consistent with our third quarter outlook, we expect future principal credit losses on NIMS to by approximately $430 million with claims payments expected to occur mostly in 2011 and 2012. Because these future expected credit losses are greater than our liability due to the impact of the market perception of our non-performance, the balance of this expense is expected to be booked in future quarters.
This future impact is GAAP only and will not impact out risk to capital ration. The premium deficiency on second liens is on the balance sheet at September 30th at $181 million.
Update projections for second liens showed an improvement in loss expectations, which reduced this premium deficiency. In addition, in January, we paid $65 million to a large second lien counter-party to unwind most of the second lien exposure to them.
This transaction eliminated some of the poorest performing second lien risk on our books and resulted in pre-tax income of $49 million in the fourth quarter, representing the excess of the liability associated with this risk above our $65 million payment. The transaction reduces second lien risk in force by $209 million to a current level of approximately $400 million.
Other than the liability directly attributed to our $65 million payment, the loss reserve and premium deficiency reserve for second liens at 12/31/08 was $159 million or approximately 40% of the remaining second lien exposure. Most of the remaining exposure consists of the older vintage, more stable performing business.
Please note that our previously mentioned claims guidance for the first quarter of 2009 of $270 million includes this $65 million second lien payment. The domestic mortgage insurance CDS business had a fair value adjustment this quarter mostly due to a small reduction in our loss expectation, which resulted in a fair value liability year-end of $63 million as compared to our expected future credit losses of $92 million.
Like on our NIMS, this differential between fair value and expected credit losses is expected to be booked over time. In the fourth quarter, we paid $15 million to a counter party [ph] to eliminate the exposure on one of our large international mortgage CDS transaction.
This reduction of exposure on Radian insurance of approximately $4 billion is consistent with our desire to reduce any non-traditional exposure in MI on reasonable economic terms. The current fair value liability on international CDS is $13 million on two transactions, which represent approximately $3.4 billion of exposure and we continue to see no reasonable scenario in which we will incur any credit losses of such exposure.
As expected, Financial Guaranty continued to have very low premiums written this quarter only consisting of installment premiums on existing business. Premiums earned were still relatively strong from refunding and we have seen some deteriorating credit performance particularly on structured finance reinsurance credits, including one credit for which we booked a $31 million reserve in the fourth quarter.
Our total par outstanding on this deal is approximately $100 million. With regard to the one CDO of ABS transaction that we talked about in the past that’s having an expected claim, we currently expect to begin to make partial interest payments around 2017 and due to the transaction structure and based on current expected cash flows principal will not be required to be paid by us until at least 2036.
Such interest payments are expected to be immaterial to our claims paying resources, and we believe that our principal payment will be significantly less than our par exposure of $480 million. The quarterly Financial Guaranty numbers were impacted by a $7 billion recapture by our primary insurers.
A reconciliation of the Financial Guaranty results with and without the recapture is provided on Schedules One and Two in our press release supplement. We are carefully monitoring our structured finance reinsurance in which there was significant increase to our intensified surveillance list this quarter.
Based on this increase, we believe it is likely that incurred losses will be as high or higher in 2009 than they were in 2008. We are planning to pay the nest ordinary dividend of approximately $94 million in mid-2009 with this dividend expected to go directly to Radian Guaranty.
Significantly, our net par outstanding at Financial Guaranty was reduced this quarter to $100.7 billion from $116 billion a year ago. It is our goal to reduce this exposure prudently and efficiently.
While we expect that some Financial Guaranty transactions will have losses over time, we still believe that capital base in Radian Asset is solid and will ultimately be largely accessible to Radian Guaranty. In addition, during the first quarter of 2009, we intend to exercise our option to issue $150 million of preferred stock out of Radian Asset Assurance in connection with our existing soft capital facility, which will generate $150 million in incremental cash and is expected to add to the statutory capital base of Radian Guaranty.
The change in fair value line was significantly impacted by corporate spread widening during the fourth quarter, which contributed to an unrealized fair value loss for the quarter of $218 million. We still don’t anticipate any material credit losses in our corporate CDO portfolio, which is by far the biggest Financial Guaranty exposure at $38 billion.
However, the significant spread widening has caused a material increase in our fair value liability before adjusting for Radian’s non-performance risk and although much of that liability is currently offset by the impact of non-performance risk, the potential future volatility in the fair value of derivative instruments on our P&L based on spread movements is very significant. Our investment portfolio continue to hold up in a stressed environment.
We had no material writedowns of any investments in the fourth quarter that we considered other than temporary. In addition, the temporary losses that have run either through the P&L or the balance sheet were lower this quarter than in the third quarter.
We continue to believe that our portfolio is positioned as well as possible in this environment. We currently have approximately $375 million of cash at/or immediately available to Radian Group.
The primary remaining financial covenant and our amended bank facility is a maintenance of at least $1.5 billion in GAAP equity. This now excludes all mark-to-market and the $1.5 billion will be reduced to $1.25 billion as of July 1st, 2009, and $1 billion as of January 1st, 2010.
Our comparative equity number for bank covenants purposes at year-end 2008 was approximately $2.6 billion. We have no rating covenant, risk to capital covenant, or debt to capitalization covenant, and no principal due until 2011.
I’d now like to turn the call over to Teresa Bryce.
Teresa Bryce
Thank you, Bob. Good morning.
I would like to begin by highlighting a concept that you heard S. A.
reference and that I will reference many times as well, quality. Our focus at Radian Guaranty continues to be writing high-quality new business, and it is the quality of our portfolio that will position us to be successful in the long term.
As S. A.
presented earlier, credit quality continues to improve. Our prime business increased to 99.6% during the fourth quarter, up from 98.4% in the third quarter.
In comparison, our prime business was 77% during the fourth quarter of 2007. High quality new business was our focus in 2008 and it will continue to be our focus for 2009.
To continue this trend, we will concentrate on two interconnected initiatives – our recently increased sales force and lender diversification. Leveraging our sales force is key to forging relationships with diverse quality lenders and these lenders are key to originating high quality new business.
Through these initiatives we generated over $5 billion in primary new insurance written in the period with over 57% from borrowers with FICO scores equal to or greater than 740. In addition, the average LTV was 90% in the fourth quarter.
With recent pricing changes this business is expected to be more professional as well. The pace of change in 2008 was unlike that in any other market that we have experienced and we continue to face challenges ahead.
We are committed to maintaining our prime base product mix and ensuring appropriate risk adjusted returns by making necessary guideline changes and pricing adjustment. These modifications are based on our constant review of the housing marketplace and real-time adjustments to our models to improve the profitability of new business on an ongoing basis.
We continue to see a rise in the prime default rates for our primary. For our primary (inaudible) insurance this is now approximately 7.1% as of the fourth quarter of 2008 and it is our expectation that the default rate will rise in the short term although we are seeing positive trends in certain vintages.
The early indicators with respect to the 2008 primary (inaudible) insurance are showing positive improvement. If we look at the loans in the pre-2008 portfolio that have the 2008 risk characteristics, the default rate will fall to below 4%.
We are working closely with our lender partners to review loan performance and take the appropriate action that will reduce the rate of default and drive profitability. This focus on reviewing portfolio performance with lenders is starting to result in improved quality.
Accordingly, we expect the performance of the 2008 book to be increasingly profitable over the year based on traction we are seeing in lender diversification, increased pricing, and tighter underwriting standards. We continue to see considerable benefit from captives.
While we would prefer to continue captives with either more favorable terms there is mounting pressure on the MI industry to consider exiting excess loss captives. As a result, we have put our revised captive policy on hold until the regulatory matters are concluded.
Our commitment to high quality new business must be bullied [ph] by industry-leading loss management practices. We started our increased focus on loss management in 2007, and in 2008 we focused on four major initiatives – one, increasing loss mitigation results, particularly focused on initiatives that decrease foreclosures and preserve homeownership; two, increasing direct borrower contact; three, improving process efficiency; and four, building customer relationship and monitoring tools.
During the second half of 2008, our new borrower website, third-party credit counseling services, and claims advance program, all contributed to significant loss avoidance. The borrower website was enhanced in January 2009 to allow borrowers to submit their financial information for assistance with a possible loan modification.
We believe that we will see increased use of these programs and services during 2009. We will continue to use our expanded resources to help keep qualified borrowers in their homes.
In 2009, we will continue to reduce claim severity, build strong relationship with our servicing partners, and continue to invest in process efficiency. As we believe these goals will be critical to our success, I would like to provide you with some color on how we will achieve them.
We expect to reduce claim severity through action such as reducing ineligible claim payments, increasing retention work-outs, especially effective loan modifications to preserve home ownership, increasing the use of Fast Advance, our partial claims advance program, and deploying more loss mitigators on site with servicers. At Radian, we believe that our efforts to preserve home ownership will be part of the solution to the housing and economic crisis.
We strongly support the initiatives by lenders and the government to do loan modifications and refinances for both defaulted and performing loans. Nevertheless, we continue to be concerned that some of these programs may encourage borrowers to voluntarily default.
This could have the effect of creating higher incurred losses even though those borrowers do not intend to proceed to foreclosure. As a result, we are implementing a performing loan modification program that will allow the modification of Radian insured loans so long as the borrower is in a better position and our exposure is not increased.
Consistent with that initiatives, we will also be working with the GSEs to implement their Performing Modification and Refinance Program announced by President Obama last week with regard to Radian insured mortgages. In 2009, we plan to advance customer relationships through increased information sharing with clients, increased service, performance supervision and Radian sponsored servicer training.
And lastly, we will target continued process efficiency through new processing systems and strengthen internal controls. We believe that these planned and existing efforts will generate continued improvements in loss management.
Turning to public policy, as we believe that it is important for our legislators, our regulators, and the public to recognize the important role that MI plays in the housing market, Radian has recently joined others in the industry by becoming a member of MICA, or The Mortgage Insurance Companies of America. It is important to speak with a unified voice to ensure that the industry is represented in the best possible manner.
At the same time, we also feel it is important to have our own presence at Capitol Hill. Consequently, Radian will continue to meet with policy makers to provide as much assistance and data as possible so that they can make informed decisions that will benefit the industry and ultimately lead to a market recovery.
And to be sure, due to strong actions we are taking today and will continue to take Radian will be positioned to benefit from this recovery when it occurs. In particular, Radian has requested the Department of the Treasury considering making the mortgage insurers eligible to receive funding under the Financial Stability Plan.
If successful, Radian will seek funding to support the writing of new business at a level consistent with or better than the historic market share. I will now turn the call over to S.
A.
S.A. Ibrahim
Thank you, Teresa. Before moving to your question, I would like to close by reiterating that Radian continues to have adequate claims paying resources in both our Mortgage Insurance and our Financial Guaranty businesses.
We have strong cash reserves at the Group level and we continue to maintain a high quality and stable market share, which will best position us for the long term. Furthermore, Radian remains uniquely positioned to benefit from our Financial Guaranty business as a continuing source of capital support for our Mortgage Insurance business.
Operator, you may now open the lines for questions.
Operator
Thank you. (Operator instructions) And we’ll go to the line of Steve Stelmach with FBR Capital Markets.
Please go ahead.
Steve Stelmach -- FBR Capital Markets
Hi good morning.
S.A. Ibrahim
Good morning, Steve.
Teresa Bryce
Good morning.
Steve Stelmach -- FBR Capital Markets
Just real quickly on the new insurance written, is given your current capacity and your appetite, is the fourth quarter a pretty good run rate in terms of NIW or would you expect that go higher, lower of the course 2009?
Teresa Bryce
I think that it’s approximately in that same range.
Steve Stelmach -- FBR Capital Markets
Okay. And if you were to receive some TARP fund, how would we think about that number going forward?
Teresa Bryce
Well, I think that the first thing is obviously last year we were quite focused on underwriting guidelines and trying to make sure that we were writing business at the appropriate risk levels. So, if we were to get government capital, then I think we will want to make sure that we are maintaining sort of the right underwriting and risk parameters.
So, within that it sort of depends on sort of what the market is within that. But obviously it would mean that we wouldn’t have to consider restricting business down the road and we would be able to continue writing within those guidelines.
S.A. Ibrahim
In other words, Steve, we would not compromise our commitment to credit quality, but with TARP funds we would seek opportunities to grow share as long as we can preserve our quality.
Steve Stelmach -- FBR Capital Markets
That makes sense. And then just lastly on that, based on your discussions with policy makers, where does it stand now in terms of receiving TARP capital?
And I realize dealing with the government tends to be a pretty fluid situation, but in terms of timing, potential size, could you just give us some color on that as well?
S.A. Ibrahim
Steve, it’s a very – as you just said, it’s very difficult with the government to estimate any hard timing. The biggest positive statement to come out was the statement that Director Lockhart issued recently where he strongly endorsed the government supporting the mortgage insurance industry and made a statement about the vital role of the mortgage insurance industry.
And we get the impression that there is a lot of sympathy for that statement at various levels on Congress and in the Treasury circles, but as you know, there is a handover from the older administration to the new administration going on, there is a lot of issues with banks and other things being dealt with. So, it’s very hard to estimate size and timing.
All we can say is we are encouraged by Director Lockhart’s statement.
Steve Stelmach -- FBR Capital Markets
And then just lastly, you did mention some improvement or seeing signs of improvement in some vintages. Could you just elaborate on that a little bit?
S.A. Ibrahim
For that we will turn the – we will turn to Scott Theobald for an answer. Scott?
Scott Theobald
What we are seeing is we are seeing some piece of results in kind of the states that are problematic. However, we are also seeing some issues in states like California, Florida, Arizona, Nevada that still continue to experience problems at this point.
We are not seeing that turnaround yet in those states.
Steve Stelmach -- FBR Capital Markets
Okay. And then on a vintage basis, have you seen that turn I guess into the ’05-’06 book or is that still deteriorating as well?
Scott Theobald
It’s still deteriorating. We are not seeing a consistent kind of turnaround recovery yet.
Steve Stelmach -- FBR Capital Markets
Okay. Thank you very much for the color.
Operator
And next we’ll go to the line of Mike Grasher with Piper Jaffray. Please go ahead.
Mike Grasher -- Piper Jaffray
Thanks very much. A couple of questions, first of all, I guess on the competitive landscape, let’s say – I don’t know if you can comment on any new entrants or decisions or rumors or and then the existing competition helpful, everybody working together, problematic or not?
S.A. Ibrahim
Let me see if I can answer both of your questions. First, you know there has always been talk about can a potential entry from new entrants with a lot of capital, and while that is possible, let me point to a couple of factors that will either inhibit it or slow it down.
First, my understanding is that the GSEs have said that new entrants would have to have significantly strong credit rating, and from my understanding from the credit rating agencies is capital is only one requirement to award somebody a high credit rating, they have to have demonstrable experience in terms of book of business and experience in managing credit risk. Second, the GSEs have been very strong supporters of the existing mortgage insurance industry as evidenced by various statements made and as evidences by their actions in continuing to support the industry.
And I don’t see that, in my opinion, changing in the near future, and part of that support means helping us to continue to be viable and do business and do the new business that is around us. So, while it’s possible, these are the factors that could slow or inhibit entry.
Second, in terms of the competitive landscape, we are still very competitive in terms of competing for new business and I am glad to say that we at Radian have been pretty successful in that arena in competing for our share of high quality business as evidenced by trends that you are all aware of, but in terms of working with the Hill and working with regulators, on the other hand, we’ve been extremely – we’ve been working very closely together because we believe that we share a common mission and a common view in making sure that the value of the mortgage insurance industry is well understood. We, together, insure roughly $200 billion in mortgages, which is a burden that would fall to the taxpayers, otherwise.
And we as an industry are very, very focused on making sure everybody understands that.
Mike Grasher -- Piper Jaffray
Okay. Thanks for that color.
And I did have a followup Teresa with regard to the Performing Loan Modification Program that you mentioned. Can you elaborate a little bit more in terms of how you plan to address or I guess market this program?
Teresa Bryce
Well, I think we are still in the process of developing that and rolling that to our lenders, probably over the next 30 days or so. But obviously it goes to this whole issue of now right now borrowers who are looking to get help and it may an imminent – it’s pretty obvious that they are going to default at some point particularly with respect to ARM adjustments and those kinds of things that we are trying to encourage them to get help early on.
They are often calling their servicers now and being told they have to be in default to get help, and we don’t think that’s really the right answer on a go forward basis. So, we are trying to do that, which would also then stem sort of what we are seeing in terms of additional defaults coming through where someone is really just trying to get help and they think that’s the only way to get help.
We are going to start the program as a pilot so that we can sort of make sure we know how to make it work and then move forward with it. At the same time, as I mentioned, we are working with the GSEs and the other MIs to work through operational issues related to dong performing mods on the GSEs’ portfolio as well.
So those really are dovetailing at this point.
Mike Grasher -- Piper Jaffray
Okay. And then maybe just a followup question here with regard to this impact on capital, would seem to be if it’s a performing loan there would be no impact, one way or the other.
Teresa Bryce
That’s right. I mean really what we are trying to avoid is folks feeling like they have to default, which does have an impact on capital.
Mike Grasher -- Piper Jaffray
Right.
Teresa Bryce
Because this – right, then it becomes part of the reserve, so we are trying to stem that issue.
Mike Grasher -- Piper Jaffray
Okay. Thanks very much.
Teresa Bryce
You are welcome.
Operator
And next we’ll go to the line of Mark DeVries with Barclays Capital. Please go ahead.
Mark DeVries -- Barclays Capital
Yes, thanks. Can you provide us any color on -- if you have any new detail on the government’s refi plan is going to work for the above 80 LTV loans.
It sounds like what they are talking about [ph] closing is essentially rolling these loans over – the ones that had a MI already to the existing insurers. Is that correct?
Teresa Bryce
Yes, that’s actually what we are working with them on in terms of the operational piece of it that I was talking about where as it’s been discussed with us, if the loan was over 80% when it was originated and so currently has MI then what would be looking to do is to have them either they would modify or refinance the loan and keep the existing insurance with the existing insurer in place. To the extent that the loan was 80 or less at the time it was originated and so therefore does not have MI on it then they would be able to modify or refi those without obtaining insurance assuming that the value is now over 80.
Mark DeVries -- Barclays Capital
And I assume they would also – they would maintain it at the original premium rate. It would be treated at the original loan to value, is that correct.
Teresa Bryce
That’s our understanding, yes.
Mark DeVries -- Barclays Capital
Okay. And – but it sounded like the way it was worded is that, that can't be objective.
Obviously the risk is – there is no risk if you are having to just reinsure the same loan you already had because you are exposed to it, but let’s say for example you have to take on some of Triad’s business, right, and you are taking on business at a higher effective LTV and the original premium, how are they thinking about working that or are they going to try and ensure that no one has to take on someone else’s risk in this process?
Teresa Bryce
Our understanding is that we only would take on our own risk, so essentially we wouldn’t take on any additional risk that we don’t currently have now. So, we really view this as a positive because it means that we can really deal with some of the defaulted loans that are in our portfolio now, and put those borrowers in a position where they are more likely to cure and less likely to default in the future and go to claims.
And on the performing loans, the same thing that I said about our own sort of looking at doing a performing mod program. We believe that those would keep those out of default.
Mark DeVries -- Barclays Capital
And part of the broader policy for us seems to be just get mortgage rates as well – effective mortgage rates as well as possible and obviously the risk based price increases that you guys have made as an industry have made that harder. Has there been any conversations about potentially rolling some of those back to get the effective rate to the end borrower lower?
Teresa Bryce
No, because I mean first of all as an industry we really can't talk about that kind of issue, but I think that when we look at it we really made adjustments based on what we think the appropriate pricing is for the risk that we are taking in this environment. And we continue to monitor that and take a look at it.
And if you look at what others have done I think they’ve been doing the same kind of thing. So, I mean there haven’t been any conversations or any pressure from the GSEs or the government for us to adjust our pricing.
Mark DeVries -- Barclays Capital
Okay. Thank you.
Operator
(Operator instructions) And we’ll go to the line of Donna Halverstadt with Goldman Sachs. Please go ahead.
Donna Halverstadt - Goldman Sachs
Good morning. Most of my main questions have been asked, but I had a – do have a couple that I wanted to ask.
With respect to Radian’s obligation to repay certain amounts to Radian Guaranty during ’09, the number that you last disclosed was $72 million and then you disclosed up to $522 million for 2010. Are those numbers still current or can you update those numbers for us?
Bob Quint
The numbers will be updated, they are right in that range, but they will be updated in our 10-K, but they haven’t changed materially.
Donna Halverstadt - Goldman Sachs
Okay. And can you give us a feel for how that $72 million may play out a quarterly basis during ’09?
Bob Quint
It’s all in the fourth quarter, so – because it relates to the tax return, so it’s a fourth quarter event.
Donna Halverstadt - Goldman Sachs
Okay. So that would be true for 2010 as well, would all be 4Q?
Bob Quint
That’s right.
Donna Halverstadt - Goldman Sachs
Okay, great. And then the bit [ph] of dividends that were received from Sherman, were those capped or did you use that to pay down a little bit of the revolver?
Bob Quint
Those were capped.
Donna Halverstadt - Goldman Sachs
Okay. So the revolver still – you still have – what’s the current outstanding on that revolver?
Bob Quint
It’s $100 million.
Donna Halverstadt - Goldman Sachs
Okay, alright. And thinking about the investment portfolio, how that may change over the course of ’09, what’s your expectations--?
Bob Quint
Probably not significantly. I mean very attuned to the liquidity needs of the operating companies so we’ve moved a lot into short term investments to handle the expected claim payments.
The general makeup of the portfolio is not expected to change materially.
Donna Halverstadt - Goldman Sachs
But how much do you expect – even if the makeup doesn’t change, do you expect there will be a material net reduction as you pay claims over the course of the year? Or do you think the--?
Bob Quint
Yes, I mean to the extent there is negative cash flow but -- and there would be if you think about the claim payments guidance that we have given, there would be some reduction in the portfolio and that would come from the short term investments that we’ve moved for that – just for that purpose.
Donna Halverstadt - Goldman Sachs
Okay. And then actually I guess that was it.
Thank you.
Bob Quint
Welcome.
Operator
And next we’ll go to the line of Brian Monteleone [ph] with Barclays Capital. Please go ahead.
Brian Monteleone -- Barclays Capital
Yes, thanks. Hey, Bob, in the risk factors that you just put out in the 8-K this morning, I think you disclosed that there is a $132 million of tax payments due the (inaudible) subs in October of ’09 and an additional $502.3 million due in October of 2010.
What happens if Radian Group Inc. doesn’t have that cash to make those tax payments back to the subsidiaries?
Bob Quint
Well, certainly for ’09, with the cash we have currently that shouldn’t be an issue. In 2010, again it’s a late 2010 projected payment, so it is projected at this point, it’s not definitive, and those tax sharing arrangements are regulatorily reviewed and it would require dealing with the regulator and we have to work through it as best we can, but we do expect that or hopeful that by that time we will have ample cash to make the payment.
Brian Monteleone -- Barclays Capital
Okay. Then just one other statement from the risk factors was that Radian is expected to incur significant additional losses in 2009.
Can you give us kind of frame of reference, is that relative to the $2 billion – the $2.1 billion of incurred losses from ’08 or can you help us kind of understand how you are thinking about that?
Bob Quint
No, I think it’s just a general statement, which isn’t too hard to make in this environment, so it doesn’t speak to the relative level compared to last year. It’s going to depend on a lot of things, obviously delinquencies, et cetera, but I think we were – we are able to give our best estimate of claims guidance, which will increase certainly from the $916 million paid in 2008.
Brian Monteleone -- Barclays Capital
Thanks.
Operator
And next we’ll go the line of George Urban [ph] with RBS. Please go ahead.
George Urban – RBS
Hey guys. Hey, thanks a lot.
It’s been really good. Most questions I got, but, Bob, can you just go over the approximate hold co.
cash position at 12/31/08? And then just the last question just to confirm there is no change to the expense sharing arrangements?
Thanks.
Bob Quint
Yes, no change to the expense sharing arrangements of any note. And hold co.
cash was – the number $375 million that I gave was current, so it’s more today than 13/31/08. 12/31/08 was a little bit higher.
George Urban – RBS
Thanks.
Operator
And at this time I am showing no further questions in queue. I will turn it back over to the speakers for closing remarks.
S.A. Ibrahim
Thank you, operator, and I would like to thank everybody for having participated in our call, and look forward to talking to you again next quarter. Thanks.
Operator
And ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service.
You many now disconnect.