Nov 4, 2009
Executives
Terri Williams-Perry – IR Specialist SA Ibrahim – CEO Bob Quint – EVP and CFO Teresa Bryce – President, Radian Guaranty Inc. Derek Brummer – Chief Risk Officer
Analysts
Mike Grasher – Piper Jaffray Mark DeVries – Barclays Capital Steve Stelmach – FBR Mike Grondahl – Northland Securities Matthew Howlett – Fox-Pitt Kelton Nat Otis – Keefe Bruyette & Woods Ed Groshans – Ladenburg Thalmann Donna Halverstadt – Goldman Sachs David Polson – AXA Investment Managers Brian Gonick – Senvest International Connor Ryan – Deutsche Bank Jordan Hymowitz – Philadelphia Financial John Evans – Friess Associates
Operator
Ladies and gentlemen, thank you standing by and welcome to the Radian’s third quarter 2009 earnings conference call. At this time, all lines are in a listen-only mode.
Later there will be a question-and-answer session and instructions will be given at that time. (Operator instructions).
And as a reminder, today’s call is being recorded. I'd like to turn the conference over to Terri Williams-Perry.
Please go ahead.
Terri Williams-Perry
Thank you, Tim. Good morning and welcome to Radian’s third quarter 2009 conference call.
If you do not have a copy of our press release, which contains the financial results for the quarter, you may obtain it from our Investor Relations Web site at www.radian.biz. During this morning’s call you will receive prepared remarks from SA Ibrahim, Radian’s Chief Executive Officer and Bob Quint, Chief Financial Officer.
Also on hand for the Q&A portion of the call are Teresa Bryce, President of Radian Guaranty; Derek Brummer, Chief Risk Officer 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 statements made in this call will include forward-looking statements.
These statements are based on current expectations, estimates, projections, and assumptions that are subject to risk and uncertainties, which may cause actual results to differ materially. For a discussion of these risks and uncertainties please review the cautionary statements set forth in the Safe Harbor statement included with our webcast slides and the risk factors included in our 2008 Form 10-K and the 2009 Form 10-Q.
These are available on our Investor Relations Web site. And now, I would turn the call over to SA.
SA Ibrahim
Thank you, Terri, and thank you all for joining us. I will begin today with my highlights of our third quarter performance, followed by additional details on our mortgage insurance and financial guaranty businesses.
I will then update you on key developments since our last call, primarily on the progress we have made to write new profitable MI business, and also on our capital and liquidity positions. Bob will follow with specific details of our financial position and important trends.
We will then open the call to your questions after some brief summary comments from me. Beginning with Radian’s quarterly results; earlier today we reported a third quarter net loss of $70.5 million or $0.86 a share.
I'm pleased to say that these results were favorably impacted by our business mix, a profitable quarter in Financial Guaranty and positive results in Sherman Financial. These sources of income together partially offset the impact of our increased MI loss provision.
This increase provision was driven by the higher delinquency counts we experienced in the quarter, along with the aging of delinquencies that contributed to $83 million loss for our mortgage insurance business. While the economic and business environment remains challenging in the third quarter, we successfully executed on several strategies to help ensure Radian’s long-term financial strength.
We will provide details on these actions later in our remarks. We know that Radian’s financial strength is critical, particularly in today's volatile economy.
Most importantly, our risk to capital ratio of 16.1 to 1 in the third quarter increased only slightly from the second quarter. We now believe that we can continue writing new MI business into 2010.
We're also actively working on strategies to help ensure that we keep driving new business well into the future. There are several examples of Radian’s strength in our quarterly financial results including, Radian's book value at September 30, 2009 of $25.91 per share.
Mortgage insurance paid claims that again came in lower than expected, and are now forecasted to be less than $1 billion for the year. The new business we are writing, which continues to perform well and contributed to the net projected future profits of $1.7 billion on our first-lien domestic portfolio, our strong $6.5 billion investment portfolio, and the approximately $380 million in liquidity available to Radian Group.
I would now like to focus on a few notable trends. Starting with our mortgage insurance business; while claims paid were lower than our forecast delinquencies continued to rise and we expect that trend to continue in the fourth quarter, despite the significantly lower defaults we are experiencing on our second half of 2008 and 2009 books, as shown on slide 14 in our webcast slides.
In October 2009, the mortgage insurance default count increased by 3.3% comparing favorably with the 7.3% increase in October 2008, and a 6.4% increase in October 2007. Historically, we typically experienced seasonally higher defaults in the fourth quarter.
And while delinquencies continue to increase, particularly for loans underwritten in the troubled underwriting periods of 2006, 2007, and early 2008, we have several potential offsets. First, we are benefiting from our ongoing proactive loss management efforts and have again increased our resources to examine more incoming claims.
You can see our third quarter recession rates on slide 9 on our webcast slides. Second, we benefit as well from our past credit protection arrangements.
Slide 16 shows the increased value from our Capitive and SmartHome reinsurance. More importantly, Bob will detail the significant risk management benefits we are realizing on our structured mortgage insurance transactions were we effectively capped Radian’s loss exposure.
We are also encouraged by early activity reports for the government Homeowner Affordability and Stability program, HAMP and HASP, which were announced earlier this year to help responsible homeowners to sensibly restructure or refinance their mortgages. While the government has already reached its November goal of 500,000 trial modifications, the treasury department estimates that this represents only 15% of eligible homeowners.
Therefore, we are hopeful that the current trial modifications will become permanent and that the program will continue to grow and succeed in reaching additional qualified borrowers. While it is difficult to gather complete data on these programs from various customers and servicers, we believe that approximately $300 million of insurance in the quarter is included in the HASP program.
Nearly 12, 800 delinquent loans carrying Radian Insurance have been placed in a HAMP trial period to date with 8,400 loans having begun the trial period in the third quarter. Once again, the new mortgage insurance business written in the quarter consisted of loans with excellent credit characteristics.
Of our $3.4 billion in new mortgage insurance written in the third quarter, 99.9% was prime credit quality and 74.6% had FICO scores of 740 or above. Even as a shepherd our capital carefully, our market share has remained in the 20% range, a level that is much higher than Radian’s historical share.
We are now successfully competing in the more traditional high-quality mortgage insurance market and as we address our capital needs we will work towards writing as much profitable business as possible. Radian asset continues to provide significant capital support to Radian Guaranty.
As we announced last quarter, we successfully commuted an Ambac reinsurance portfolio that added $40 million in statutory surplus in the third quarter. And we also received approval to release approximately $143 million of contingency reserve in the fourth quarter of this year.
In addition, we expect Radian Asset to pay another ordinary dividend to Radian Guaranty in June 2010 of approximately $90 million. The current environment in Financial Guaranty is challenging as financial firms including banks feel the impact of the economy.
However, it is again important to note that we currently include approximately $935 million in statutory capitals for the purpose of calculating our mortgage insurance risk to capital ratio, we have an additional $1.6 billion in claims paying resources in our Financial Guaranty business. Now let's turn to mortgage insurance capital and holding company liquidity.
Once again, we believe we can write new mortgage insurance business into 2010, and are working diligently to alleviate any capital concerns for the business well into the future. Radian’s risk to capital ratio of 16.1 to 1 at September 30 was clearly below the 25 to 1 limit imposed by several states.
However, we do expect our ratio to increase in the absence of new capital or risk release. Our industry trade association, MTIA, made significant progress over the past several months in six other states that imposed a 25 to 1 risk to capital limit, including California and Texas.
There are now 10 states remaining with a 25 to 1 limit is in place without any discretion allowed by the state insurance commissioner. Since the risk to capital ratio remains sensitive to the uncertainty around future levels of defaults, Radian continues to pursue various initiatives designed to manage our risk to capital ratio and enable us to write more mortgage insurance business.
These initiatives potentially include reinsurance utilizing our Amerin subsidiary and continued efforts to commute or restructure our credit exposure. These are important priorities for us and we have made meaningful progress in evaluating reinsurance options and in preparing Amerin to write new business if needed.
We will report significant developments in the future as appropriate and remain focused on executing one or more of these alternatives in order to keep tracking new business without interruption. Now turning to holding company liquidity, we have a series of initiatives with the objective of meeting our liquidity needs through 2010 and reducing our 2011 liquidity needs to a more manageable level.
First, we repaid our credit facility which allowed us to repurchase nearly $58 million of our 2011 public debt in the quarter, which in turn reduces the total principal on our 2011 debt to $192 million. Next, we fully satisfied our October 2009 tax sharing obligations to Radian Guaranty through the use of our equity interest in Sherman.
This frees up approximately $100 million in cash at the holding company while preserving any future upside in Sherman's value within the Radian family. We also received $4.6 million in dividends from Sherman in the third quarter.
Finally, we continue to explore the possibility of raising additional capital to support holding company liquidity and to write new mortgage insurance business. Our primary focus at Radian is to effectively leverage Radian’s financial strength, strong customer relationships, and our unique business mix to manage losses and write new high-quality mortgage insurance business.
We are positioning our company to succeed as a high-quality mortgage insurer with a strong franchise when the markets recover. And now I will turn the call over to Bob.
Bob Quint
Thank you, SA. Good morning.
I'll be updating you on to the P&L activity and trends for the third quarter 2009, and our financial position as of September 30, 2009. Our MI provision for losses of $376 million this quarter reflects a higher delinquency counts and continued aging of delinquencies.
Our recent denial and rescission levels continue to be much higher than historic levels, and we expect it to continue as long as our delinquencies are concentrated in the poor underwriting periods of 2006, 2007 and early 2008. Because the majority of our loss reserves are from later-stage delinquencies or pending claims on loans from the ’06, ’07, and early ‘08 vintages, we have good insight as to what kind of loans these are and what they anticipated recession rates on these loans will be.
Some updated statistics regarding recent denial and rescission levels are contained in the webcast slide number 9. Our actual dollar amount of denials and rescissions for third quarter of 2009 was approximately $300 million and was approximately $950 million year-to-date.
These figures include loans in deals with remaining deductibles for which we would not obtain a claim. Paid claim for the quarter were $243 million, consisting of $210 million of first lien and $33 million of second-lien with $22 million of the second-lien figure coming from a deal termination.
Claims paid were again less than expected. Please note that, net claims paid reported in our disclosure were significantly reduced by recoveries of trust balances from terminated captive reinsurance agreements that are accounted for as claim recoveries.
Claim recovery amounts, which do not have a ceded loss recoverable associated with them positively impact the incurred loss line, while recovery on an amount already recorded as a ceded loss recoverable goes against that recoverable and does not impact the P&L. For example, if we recover $20 million from a terminated captive that has $10 million of associated ceded losses recoverable, we would record a claim recovery of $20 million, a reduction of incurred losses of $10 million and a reduction of ceded losses recoverable of $10 million.
For the third quarter of 2009, incurred losses were reduced by approximately $68 million for such recoveries. We expect that total first and second lien claims paid will be approximately $290 million in the fourth quarter, which would bring full year claims to approximately $940 million, which includes $87 million of second lien termination payments.
We expect an increase in paid claims in 2010 and we will provide a dollar estimate when we have more visibility with respect to this amount. We also expect delinquencies to continue to increase over the balance of 2009 based on recent trends and the typical seasonality associated with the fourth quarter.
Beyond that, change in delinquencies will be dependent on the macroeconomic conditions, the behavior of borrowers of our insured loans, and the impact of the significant private and government mortification efforts, for which we expect to start seeing more meaningful results soon. As we do every quarter, we have updated our future projections on existing business and this analysis is depicted on webcast slide number 12.
The gross loss number that we show our top of the slide takes into account significant future savings that we expect to realize from structuring of many of our deals. Some of the worst performing business on our books is contained within modified pool and pool transactions that contain deductibles and stop-loss features where Radian is not responsible for losses above a certain level.
As an example, approximately 68% of our exposure to the option ARM product is contained within modified pool transaction. Capping our losses on such transactions was an important part of Radian’s risk management strategy when determining our participation in this business.
And in the current stress environment, we believe that these features will reduce our ultimate future losses by well over $1 billion compared to what we believe they would have been without such features. And this savings has incorporated in our forecasted numbers.
Second lien risk in-force has been reduced from $354 million on June 30, 2009 to $284 million as of September 30, 2009. The loss reserve and premium deficiency reserve for second liens at September 30 is approximately $91 million.
In Financial Guaranty, we experienced worsening credit trends this quarter. With regard to the one problem CDO of ABS transaction, we still believe that based on current expected cash flows, which are very volatile we will not be required to pay principal until 2036 or later, and that the ultimate principal payment will likely be a significant portion of our total exposure of approximately $468 million.
Interest advances are now expected in 2010, and could occur earlier if deterioration is worse than expected. At such time, we would be required to post the loss reserve for the present value of future losses, which would negatively impact Radian Assets and thus Radian Guaranty's statutory capital.
The asset class that has deteriorated the most in third quarter is our TruPs CDOs, which contain underlying collateral that consist mostly of trust preferred securities issued by regional and community banks. In October, our worst performing TruPs transaction with a total par exposure of approximately $212 million defaulted due to an abnormally high amount of interest deferrals by banks in early October.
We expect to set up a statutory loss reserve in the $50 million to $90 million pretax range in the fourth quarter. And this will be subject to adjustment based on changes during the remainder of the fourth quarter.
Banks included in these transactions generally have the option to defer interest for five years before defaulting. However, any deferral has a negative impact on the deal’s current cash flow.
The ultimate outcome of these deferrals will have a big influence on the ultimate performance of this transaction and our TruPs portfolio, which has a total exposure of $2.3 billion. Our subordination in of all these transactions is substantial.
However, we expect some future losses in this portfolio. Details of our TruPs exposure is presented on webcast slide number 25.
As SA mentioned, due to the overall reduction of exposure in our Financial Guaranty portfolio, we have just received regulatory approval to transfer approximately $143 million from contingency reserve into surplus. This will benefit Radian Asset, and thus Radian Guaranty’s statutory capital in the fourth quarter, and at this point would more than offset negative impact from the defaulted TruPs transaction.
The change in fair value line was impacted this quarter by a significant tightening of credit spreads and the underlying corporate CDO collateral by a tightening of Radian’s credit spread, and by credit deterioration in our TruPs CDO portfolio, all of which contributed to our unrealized fair value loss for the quarter of $31 million. The corporate CDO product had a net gain of approximately $102 million, while the TruPs had a net loss of approximately $110 million.
The fair value line will likely continue to fluctuate; however, we continue to point out instances where we anticipate credit losses. Our investment portfolio had an excellent quarter with total returns for the quarter of over 6%, including returns on our municipal portfolio in the 12% range.
The portfolio gains during the quarter were the reason that our book value grew to just under $26 per share despite our P&L loss. We also had approximately $97 million of P&L investment gains consisting of realized gains of $40.5 million, which include $12 million of gains from the repurchase of our 2011 debt, and $56 million of net unrealized portfolio gains.
We currently have approximately $380 million of liquidity at or immediately available to Radian Group. Our current best estimate of tax-sharing payments that we will be required to make to our subsidiaries by October 2010 is approximately $250 million, which is based on 2009’s projected taxable results.
This is up a little bit from our prior quarter projections. It is also possible for there to be a tax payment due in October 2011, and that will depend on 2010 results.
The preliminary estimate for the statement is approximately $44 million, and the maximum it could be is $77 million. As SA mentioned, the purchase of $58 million of par on our June 2011 debt for purchase price of approximately $46 million, leaves $192 million of par outstanding on the debt that matures in June 2007.
I would now like to turn the call back over to SA.
SA Ibrahim
Thank you, Bob. Before we open up to your questions, we would like to leave you with the following takeaway points.
Radian’s book value at September 30, 2009 of $25.91 per share, Radian’s risk to capital ratio of 16.1 to 1 on September 30, and we now believe that we can comfortably write new MI business into 2010. Mortgage insurance paid claims, again, lower than forecasted and now expected to be less than $1 billion for the year.
Approximately $380 million in liquidity available to Radian Group. And our continued focus on mitigating and managing our legacy risks and ensuring our inability to write profitable new MI business.
Operator, we are now ready to take questions.
Operator
Thank you. (Operator instructions) And our first question then today comes from the line of Mike Grasher with Piper Jaffray.
Please go ahead.
Mike Grasher – Piper Jaffray
Thank you, and good morning. Bob, just going back to the TRuPS, can you give us a little bit more detail around – and I understand subordinations are high and they look fairly reasonable here.
But can you give us more details or examples around, maybe an issue or two in your experience on foreclosures within any of the particular issues?
Bob Quint
Mike, I think what you mean maybe is defaults. And the predominant the reason for the deterioration in the TruPs is due to deferrals rather than defaults.
There have been some defaults, but there have been many deferrals. So the banks have chosen to defer interest and that impacts the cash flow of the deal.
Mike Grasher – Piper Jaffray
Okay. So when we read about the Feds going in and closing down community banks here and there, are you saying that’s no impact at all on your issue?
Bob Quint
Well, if there is a default, then that would reduce the subordination in the deal. If there is a deferral that’s going to impact the cash flow within the ultimate outcome of the those deferrals whether the deferrals become defaults – and like we said they have five years – or they end up curing, that will impact the ultimate outcome of the deals.
Mike Grasher – Piper Jaffray
Okay. That’s helpful.
Then also with regard to the bulk of new claims that are coming through, can you talk about the vintage that maybe those lie in? Are they still coming through for '06, '07, and ’08?
Have those changed or can you give us some mix of what the new claim activity looks like?
Teresa Bryce
Hi, this is Teresa. Yes, most of them we are still seeing are in the vintages of 2006 and 2007, some obviously for 2008, but clearly mostly 2006 and ’07.
Mike Grasher – Piper Jaffray
Okay. Is it your sense that if you think about the ’06, ‘07 claims that have already come though versus the new ones that are arriving, is there a difference in the type of claim?
In other words, is it – are the earlier claims more related to the fraud and maybe terms for rescissions versus the new ones coming through, maybe tied to less about credit quality, but more about I guess the ability to make the mortgage payment or employment related type of claims.
Teresa Bryce
Mike Grasher – Piper Jaffray
Okay. That’s helpful.
Thank you much.
Operator
Great, thank you. And we have a question then from the line of Mark DeVries with Barclays Capital.
Please go ahead.
Mark DeVries – Barclays Capital
Thanks. Could you just comment on what you are seeing on roll rates for seriously delinquent loans?
What percentage of those loans are just sticking around longer due to backlogs with servicers working on modifications? What percentage are curing?
And of those that cured, how much of those effectively are just curing due to rescission?
Bob Quint
I think we’ve seen a continuation where many of the late stage delinquencies are just staying. So there is this backlog and that the main reason that claims paid have been lower.
So the ultimate outcome of these loans has not been determined yet, obviously some will go to claim at which time we will either pay the claim or we will rescind, but most of them have really stayed around in the late state delinquency bucket.
Mark DeVries – Barclays Capital
Okay, great. And Bob, could you comment at all, if we get an extension of the NOL period, what that might mean for you and how T&L bonds would affect that?
Bob Quint
Yes, preliminarily if that happens we don’t think it’s going to have a material impact. Certainly it would have minimal impact on the consolidated situation for Radian.
Mark DeVries – Barclays Capital
Okay, thanks.
Operator
Great, thank you. And next we will go to the line of Steve Stelmach with FBR.
Please go head.
Steve Stelmach – FBR
Hi, good morning. Bob, can you just – you mentioned slide 12 and the cumulative claim frequency looks like the assumptions that you are using have improved from 13.5% roughly to about 11%.
Is the improvement based solely on denials, I guess a higher expectation for denials and recessions? Or is there something about the underlying quality today that you think is better versus maybe couple quarters ago?
Bob Quint
Absolutely. I think the main reason it’s come down sort of throughout the year is because of the denial and recession estimates, but every quarter we keep adding what we believe is very good business to the mix.
And clearly our expected claim rates on the new business are much, much lower so that’s going to impact the numbers as well.
Steve Stelmach – FBR
And just to follow up on that, the cure rate question. Can you give us some context of where it was historically, where it is today, and where do you expect it to go absent the rescissions and denials?
Bob Quint
Steve Stelmach – FBR
You would need to see home price appreciation or at least some stabilization for cure rates to improve from here?
Bob Quint
Yes, and also certainly modification efforts coming through because those would be cures as well.
Steve Stelmach – FBR
All right. Thank you very much.
Operator
Great, thank you. And our next question then comes from the line of Mike Grondahl with Northland Securities.
Please go ahead.
Mike Grondahl – Northland Securities
Yes, SA, if you could kind of just walk us through strategically what are the couple things you are working on the most to really continue to write new quality business, to take market share, and kind of continue to plow forward?
SA Ibrahim
Thanks, Mike. There are couple of things to keep in mind here.
First, we have successfully moved Radian’s mortgage insurance strategy to focus on traditional high quality business. And have done so based on significant additions we have made to our risk management infrastructure and risk management changes.
And on the customer relationship side, we’ve brought on new sales people. We are now going after a mid size and smaller accounts in a bigger way than Radian used to go historically.
Our goal is to put in place a mortgage insurance strategy that positions us well for market recovery. In terms of our ability to keep writing more mortgage insurance business, I outlined the various initiatives that we are looking at.
First, we benefit to the extent that industry efforts in relaxing the 25 to 1 requirement change. Second, we are fortunate and benefit from having our Amerin entity which we have been preparing and have made progress in getting ready to write business in those states were 25 to 1 still remains a factor.
In addition, we’ve benefitted from the fact that our risk to capital ratio for mortgage insurance went up only slightly. And then we outline the various other strategies that we are working.
All in all, the name of – our focus is really having now repositioned our mortgage insurance business successfully to continue to take advantage of the opportunities in the market, and the market share quarter to quarter will go up and down, but the important point here is we are at a much higher level than our historical market share level.
Mike Grondahl – Northland Securities
Okay. And just as a follow up, maybe for, Bob.
Clearly, the Financial Guaranty business had a reserve release during the third quarter, the $143 million. When that release was taken, was it taken with full knowledge that the bank TruPs portfolio was going to have this fourth quarter hit, so that was kind of factored into it too?
Or did that come up after the fact?
Bob Quint
Mike, the release is in the fourth quarter. So that hasn’t occurred in the number that you are looking at.
That has not occurred and that is due to the overall reduction of exposure in the portfolio. So it is completely separate.
So we are going to take this contingency reserve, move it to surplus. That increases surplus.
But as well in October, we had this TruPs default, which will require a statutory loss reserve and we just related the two because one will increase surplus, one will decrease surplus. And right now, the one that’s going to increase surplus is higher.
But there are other things that are going to impact surplus as well. But that’s a fourth quarter event.
Mike Grondahl – Northland Securities
Okay. But you are still happy with the reserve release of $143 million, knowing that the TruPs hit is coming.
I guess that was my question.
Bob Quint
That’s been approved. So that’s going to happen regardless.
SA Ibrahim
Mike Grondahl – Northland Securities
Okay. Sure.
And then any update on commutations in the Financial Guaranty business?
SA Ibrahim
Mike Grondahl – Northland Securities
Okay.
Operator
Great, thank you. And our next question then comes from the line of Matthew Howlett with Fox-Pitt Kelton.
Please go ahead.
Matthew Howlett – Fox-Pitt Kelton
Thank guys for taking my question. Just on the reserve per delinquent loan, it trended down a little bit this quarter.
There was a peer of yours that mentioned – that guided – it continued to trend down in the fourth quarter. You mentioned your delinquencies are going to be up in the fourth quarter.
Any guidance around that?
Bob Quint
Around reserve per delinquent loan?
Matthew Howlett – Fox-Pitt Kelton
Yes.
Bob Quint
No, we didn’t give. We just said we expect delinquencies to increase in the fourth quarter.
Reserve per delinquent loan, that depends on a lot of other factors that will change in the fourth quarter.
Matthew Howlett – Fox-Pitt Kelton
Okay, fair enough. Let me ask this then, of these $200 million of you said rescissions or denials this quarter, how much reserves did you have against those loans that eventually you rescinded or denied?
Could you give us that number?
Bob Quint
We can’t give you that number. I don’t have that number.
But that’s just the dollar amount of recession. So if you think about we are already incorporating an estimate of recessions on our entire delinquent portfolio.
The dollar amount of rescissions is certainly relevant because it shows you the amount that we are doing, but you can’t really relate it to the P&L specifically.
Matthew Howlett – Fox-Pitt Kelton
Okay. And just on your assumptions, I know you gave the cumulative claim frequency on page 12.
Any way you could tell us what that frequency was, that gross number is sort of before denials and rescissions?
Bob Quint
We haven’t done that math. But I think we do – we are giving more and more information around the percentage of that recession.
So you can –.
Matthew Howlett – Fox-Pitt Kelton
I can do it that way. Great.
Just a last question on HAMP, you gave us the level of loans that have entered into trial period. The Treasury also puts out what they say is eligible, the 3.1 million.
Some MIs have been giving eligibility rates. Is there any way to tell when you look at your delinquency portfolio or your just overall portfolio what could fit under that eligibility window with that?
Teresa Bryce
Hi, this is Teresa. I think first of all, we’ve been very pleased with the ramp up that we’ve seen in the number of loans that have gone into the HAMP modification trial period.
So we’ve seen a huge expansion of that over the last couple of months, particularly as some of the servicers were able to start really pushing these through. The difficulty I think is that we don’t have access to the income information that would allow us to really sort of size the number.
And so while we continue to look for opportunities to try to size that I don't think we are comfortable with trying and make that projection about how much of the portfolio is HAMP eligible right now. We do believe that our portfolio will be consistent with the other portfolios.
Matthew Howlett – Fox-Pitt Kelton
And that is obviously not baked into your cumulative claim frequency, any potential benefit from HAMP?
Teresa Bryce
There is no specific.
Matthew Howlett – Fox-Pitt Kelton
Great. Thank you.
Operator
Great, thank you. And our next question comes from the line of Nat Otis with KBW.
Please go ahead.
Nat Otis – Keefe Bruyette & Woods
Morning. Actually just two quick questions; first one on that $300 million in recession and denial activity this quarter, any way to break that out by either product or book year just to get an idea of what the larger percentages are of business that you are rescinding and denying right now?
Bob Quint
Nat Otis – Keefe Bruyette & Woods
Is it fair to say that it is still primarily ’06, ’07 vintage, and maybe the majority still all-pay business right now?
Bob Quint
Certainly from a vintage standpoint, yes. And that should continue as well.
Nat Otis – Keefe Bruyette & Woods
All right. And then just one last quick follow-up question on something you said earlier.
Did you say that on October, delinquencies were up 3.3%, was that the number you gave?
Bob Quint
Yes.
Nat Otis – Keefe Bruyette & Woods
Okay, all right, great. Thank you.
SA Ibrahim
And compared to the numbers that we gave for previous two Octobers.
Nat Otis – Keefe Bruyette & Woods
Great, thank you.
Operator
Great, thanks. And our next question then comes from the line of Ed Groshans with Ladenburg.
Please go ahead.
Ed Groshans – Ladenburg Thalmann
Derek Brummer
Yes, this is Derek Brummer. It depends on the transaction in terms of the percentage of portfolio that would have to defer, and a lot of that’s going to be driven by the fact in terms of how the transaction is hedged.
The particular transaction that we had a default on [ph] suffered from the fact that much of the cash flow was going to pay the interest rate hedges. So I think that’s very dependent upon the transaction in terms of the percentage of deferrals.
Ed Groshans – Ladenburg Thalmann
Okay. So you could see some other ones have higher levels of deferrals, but not come in at the default depending on how much was hedged out or not.
Derek Brummer
By the transaction we suffered the interest shortfall on deferred from other transactions in a couple of ways. The collateral was of lower quality – the banks were of lower quality and collateral pool.
And number two, more of the cash flow was going to pay the interest hedges compared to our other transactions.
Ed Groshans – Ladenburg Thalmann
Okay. So then I guess, if I look at your footnote two and if I guess the parties that hold the notes do call the par amount, is it going to be the par amount less the amount of subordination after deferrals also?
Do you need to burn through that first before there is actual cash payment from Radian, I guess is my question?
Derek Brummer
No, in the instance – if there is an outstanding event of default on the scheduled termination date of the swap, we would pay par. And our counterparty would have the right if they exercise that to either provide us with the bond or they would provide us with recoveries on the bonds over time, meaning paying us any coupon on the bond and ultimate principal recoveries.
Ed Groshans – Ladenburg Thalmann
Okay. So if they did that it would actually be an immediate cash payment out and then recovery either via the receipt of the bonds or future cash flows?
Derek Brummer
Correct.
Ed Groshans – Ladenburg Thalmann
Okay. Thank you so much.
Operator
Donna Halverstadt – Goldman Sachs
Hi, can you hear us now.
SA Ibrahim
Yes.
Donna Halverstadt – Goldman Sachs
Great. Thank you.
I had a couple things I wanted to ask you about. And one is a topic that’s been under debate recently and that’s the idea of expanding the carry back provision from two years to five years for NOLs generated in 2008 and 2009, which could clearly generate some much needed cash for many different types of companies.
A couple questions on that. One, what do you think odds of that passing are?
Two, if it were to pass what amount of tax refund would you expect to get in 2010? And, thirdly, are there any quirks to your situation, whether it be related to tax and loss bond stuff or otherwise, that might prevent you from benefiting from that change in tax loss if it is implemented.
Bob Quint
Donna, we don't really know the odds of it happening. However, the impact to Radian on a consolidated basis will be negligible.
We don’t have additional carry back potential that we would be able to utilize. So on a consolidated basis we don’t think the impact will be more than very, very minimal.
There may be some individual company impact and we don’t think that would be material, but we hadn’t really worked through exactly the specifics.
Donna Halverstadt – Goldman Sachs
Okay, great. The other thing I wanted to ask you about is after you announced last quarter that you would be playing the Sherman card to satisfy the '09 tax obligation to Radian Guaranty I started wondering what types of things you might be able to do with respect to the 2010 obligation.
And I was wondering if you’ve had any conversations with regulators about the possibility of extending that payment over a period of some years rather than paying it all in 2010. Or if there is any other types of moves you are thinking about other than spending the $250 million of cash in October 2010.
Some way to spread it out or use some other asset to pay it off, anything going on on that front.
Bob Quint
At this point, we expect to pay it off in cash. And of course, we’re always going to look for ways to improve our liquidity and capital situations.
So there are things that – certainly things we are discussing and look at, but at this point, the expectation is that we will pay it off in cash.
Donna Halverstadt – Goldman Sachs
Okay. And then I also wanted to get an update on something I haven’t asked about in a number of quarters, and that’s what your current outlook is on the Holdco [ph] having to make any payments under the variety of inter-company guarantees and capital support agreements that it's party to?
How are you thinking about those right now, anything on horizon?
Bob Quint
There is nothing material that we expect to happen there. There we’ve made, as you’ve seen in our disclosure, we made some small payments, but we certainly don’t think anything material is on the horizon.
Donna Halverstadt – Goldman Sachs
Okay. The last question I had is with respect to the defaulted TruPs CDO portfolio, whether or not there is any sort of collateral posting requirements.
And just more broadly for each of the MI business as well as the FG business, for the business that you have written in CDS form, is there anything we should be concerned about in terms of collateral postings or terminations?
Derek Brummer
On the FG side, we wouldn't be required to post collateral on the TruPs or any of our transaction.
Donna Halverstadt – Goldman Sachs
Bob Quint
No, most of that exposure is either gone or very, very small. But no collateral posting at all.
Donna Halverstadt – Goldman Sachs
Great. Thank you very much for taking my questions.
Operator
Great, thank you. And our next question then comes from the line of David Polson with AXA Investment Managers.
Please go ahead.
David Polson – AXA Investment Managers
Hi, thanks for taking my call. I am trying to make sure I under about the benefits of HAMP and HARP.
Right now to what extent are any benefits – actual or potential benefits – in loss reserve numbers from those two programs?
Teresa Bryce
At this point, we don’t have a specific addition to our loss reserve methodology that makes an assumption about how successful those programs will be. At this juncture so many of them are in the trial modification period that while the number is ramping up significantly, which we think is a good sign, we won’t see how that turns out until those start coming out of the trial mod periods which would be we expect later in the fourth quarter into the first quarter of next year.
David Polson – AXA Investment Managers
So, the way that would work is any modification essentially becomes a cure and the reserve just comes off the books?
SA Ibrahim
Mathematically.
David Polson – AXA Investment Managers
Well, an actual modification as opposed to a trial one?
Bob Quint
That’s right.
Teresa Bryce
It’s not considered to be cured or truly modified until the trial – it comes out of the trial modification period.
David Polson – AXA Investment Managers
I see. Okay, that’s very helpful.
Now the $1.6 billion that you talk about, the capital and the Financial Guaranty subsidiary – or I guess that is claimed resources. In the mortgage insurance risk-to-capital ratio, is there any benefit in that ratio from the Financial Guaranty capital?
Bob Quint
Yes, the $900 million. That surplus of $900 million, the $1.6 billion that SA mentioned is additional claims paying resource.
That is going to be contingency reserves on our premiums and other items that are included within claims paying resources.
SA Ibrahim
Now to the extent that contingency reserves release from that and go over to stacked capital that reduces that amount and contributes to our stacked capital.
David Polson – AXA Investment Managers
Got it.
SA Ibrahim
The $143 million we talked about moves from that pocket to a pocket where it benefits us.
David Polson – AXA Investment Managers
Bob Quint
Yes.
David Polson – AXA Investment Managers
Okay. So that’s a big part of that.
Is that – can you maybe give us some color as to how much that is kind of unusual in the whole portfolio of TruPs that you have? Is that sort of a – does that really stand out from the pack or does that – if let's say, the bank environment continues to get worse or just commercial loans – the commercial real estate environment worsens in 2010, to what does that phenomenon bleed into other TruPs?
Derek Brummer
We have experienced deterioration across the portfolio. Like I indicated, that transaction suffered worse for a couple of reasons.
Again, just because of the more accelerated deterioration in that particular portfolio and interest rate hedge on payments that had to be made. However, if we see continued deterioration in the banking sector, that will affect our other transactions.
SA Ibrahim
Now independent of bank deteriorations, like we said, they have the option of deferring for five year where they could decide for reasons of their own to defer interest payments and then come back and pay them.
David Polson – AXA Investment Managers
Right. And that’s where I was kind of going with this.
To what extent does up to $90 million of reserves look forward to the potential for? Is that – how conservative is that with regards to deferrals turning into actual permanent non-payments?
Derek Brummer
Our forecast is conservative. We are getting very little recovery value for collateral that’s currently deferring.
If it turns out that a higher portion defers and cures that would obviously affect the ultimate loss in the transactions. At this point in time, we haven’t seen an increase in cure.
So we are not projecting that in our base case scenario.
David Polson – AXA Investment Managers
All right, I guess, that’s all I got. Thanks.
Operator
Great, thank you. And next we go to the line of Brian Gonick with Senvest.
Please go ahead.
Brian Gonick – Senvest International
Good morning. I just want to clarify some of the comments on HAMP, relative to page 12, where you are showing net projected profit now.
Just to confirm, that does not assume any benefits from HAMP, is that right?
Bob Quint
No explicit benefit from modification.
Brian Gonick – Senvest International
Teresa Bryce
Yes, a little over that.
SA Ibrahim
It’s an estimate, but it’s very hard to – very difficult to get data and that data is not consistent by lender/servicer, by agency. So it is difficult at this point to get the data.
That’s our best estimate, it could be higher.
Brian Gonick – Senvest International
And is there any way to quantify what the reserves would be against those 12,000 loans?
SA Ibrahim
Bob Quint
There is no reason to believe it's not sort of an average part of the portfolio. So you could probably get in the ballpark, if you – you have to try.
Brian Gonick – Senvest International
So if we use what reserves were for delinquent loan at the end of quarter of $17,000 or whatever, is that a fair number to use or would it be higher potentially?
Bob Quint
I wouldn’t use anything other than the average to estimate it. And we don’t know.
SA Ibrahim
But it would be aged defaults that would have potentially –
Teresa Bryce
We don’t know that.
SA Ibrahim
We don’t know that either.
Teresa Bryce
We don’t know that. So I think that’s why it’s difficult to say specifically what the number would be.
Brian Gonick – Senvest International
Right. Do you think in this quarter when you report the fourth quarter will have some data then on things that have gone or come out of trial?
Teresa Bryce
I think we are certainly hopeful that we will see some of these start going out of the trial mod periods and curing. So I think we are hopeful that we will start to see some of that activity by the time we report the fourth quarter.
SA Ibrahim
Though it may be more realistic to expect seeing some of that in the first quarter because these go through a trial period.
Brian Gonick – Senvest International
Right. But I guess when you report the fourth quarter some time in, I don't know, February we might have some data at that point on which you can talk about it.
Teresa Bryce
I think we would hope so, yes.
Brian Gonick – Senvest International
Okay. Thank you.
Operator
Great, thanks. And our next question then comes from the line of Connor Ryan with Deutsche Bank.
Please go ahead.
Connor Ryan – Deutsche Bank
Hi, guys, thanks for your time. I was just wondering if you could quickly bridge the Holdco cash number for last quarter to this quarter.
And just wanted to understand if you got your payments from the IRS this quarter?
Bob Quint
No, there haven't been IRS payments for several quarters. The 105, as I recall, was several quarters ago.
The main difference from last quarter is we paid $100 million of our credit facility and terminated it. That is the material item and then there were some ins and outs.
We sold a small subsidiary and got $19 million, but that is really it.
Connor Ryan – Deutsche Bank
Okay, great. Thank you.
Operator
Great, thanks. And we have a question then from the line of Nat Otis with KBW.
Please go ahead.
Nat Otis – Keefe Bruyette & Woods
Thanks, just one quick follow up on the HAMP modifications. Once they get through that trial mod period and in theory they are performing again – and obviously it sounds like you are being appropriately conservative on where they might go from there versus historical levels.
Is there – can you give any color on what might happen in event that someone who went to HAMP, has gone through the trial period, comes out, is completely performing, reserves are released but then at a certain point in time then starts defaulting again? Are you going to treat that loan any differently than you would a normal loan that is first coming due or first going delinquent, or would you treat it differently from a reserving standpoint given that’s already gone through the HAMP modification process and might not been succeeding?
Bob Quint
We would treat it as and give it a normal reserve consistent with the overall reserving levels that we would setup.
Nat Otis – Keefe Bruyette & Woods
Operator
Great, thank you. And we are going to go to the line of Jordan Hymowitz with Philadelphia Financial.
Please go ahead.
Jordan Hymowitz – Philadelphia Financial
Thanks for taking my question. I have two quick questions.
One is can you break down your reserves for loans and default on prime versus let's just call it everything else?
Bob Quint
Certainly, we haven’t done that. It really depends on the aging a lot.
So it’s more than just the loan size, which defers. It’s the aging.
It’s a variety of factors. But we haven’t broken the reserve for default down by product.
We give you the reserves by products. So actually you can come close yourself because you know the delinquencies and you know the reserves.
Jordan Hymowitz – Philadelphia Financial
Okay. My second question is the HAMP and HARP programs, if you all saw the MTIA data in the month of September the cure to default ratio was much higher.
Do you think that was a result of the HAMP and HARP programs finally taking effect? And more superficially can you comment on your modifications in the month of September versus the quarter as a whole?
Teresa Bryce
I think at this point we really don’t know if that’s the reason. We are trying to get better data and information about that.
But it is really too early for us to know.
Jordan Hymowitz – Philadelphia Financial
Did you see a big increase in your modifications in the month of September versus July and August?
Teresa Bryce
We certainly saw a lot more loans going into the HAMP trial modification period. A significant change in that, yes.
Jordan Hymowitz – Philadelphia Financial
Okay. All right, thank you very much.
Operator
Great, thank you. And our last question today comes from the line of John Evans with Friess Associates.
Please go head.
John Evans – Friess Associates
Can you just talk a little bit about – help us understand with the payments that you have, how much money you are still short at the Holdco to pay for the '11 bonds? And then maybe help us with your strategy to try to get those paid off, because it seems like if you get this paid off then you have a lot of time to kind of deal with all the other issues.
Bob Quint
Well, we gave you the math. We have $380 million of cash.
We’ve got an expected payment in October 10 of $250 million, which would leave $130 million and the current and the current par outstanding of $192 million. Now we have repurchased some of that.
That’s certainly a possibility. And we are constantly seeking ways to deal with that shortfall, that we have made it a lot smaller over the last few quarters than it has looked previously.
So that is something that we are keenly focused on. But right now, it is still ways off in terms of the maturity date.
John Evans – Friess Associates
Do you think that you will have your plan in place before they go current?
Bob Quint
Meaning, one year, is that what you are saying?
John Evans – Friess Associates
Yes.
Bob Quint
Obviously, it’s a high priority for us to deal with this. We are hopeful that we can do that as soon as we can.
SA Ibrahim
We are very pleased with the fact that we’ve been able to shrink it. And as we’ve said, we remain focused on trying ways to either shrink it further to much more manageable level or to eliminate it.
John Evans – Friess Associates
Right. And then the last question I would ask just relative to that, MGIC they seemed pretty convinced that they would be able to dividend up to the Holdco potential next year.
Can you talk a little bit about just – I know that’s a long time from now, but do you have any thought processes that you may be able to dividend up to the Holdco?
Bob Quint
Yes, it is a possibility. Any dividend that we pay from Radian Guaranty would need to be approved by our state regulator, Pennsylvania.
So certainly it's a possibility.
John Evans – Friess Associates
And just can you refresh my – is Pennsylvania at 25 to 1 yet or no?
Teresa Bryce
No.
SA Ibrahim
Pennsylvania never had 25 to 1. It’s been at the discretion of the regulator and we have very good relationship with the Pennsylvania regulator who has been very supportive of our efforts to write new business.
John Evans – Friess Associates
And then the last question then, you don't anticipate dividend anything up at the end of this year, correct?
Bob Quint
That’s right.
John Evans – Friess Associates
Okay. Thank you.
Operator
Great, thank you. And that does end our question and answer portion for today’s call.
At this time, then I would like to turn the conference back over Mr. SA Ibrahim.
SA Ibrahim
I would like to thank all the participants for having participated in the call. And thank you again for the questions you’ve asked, and as always we will follow up if you have any issues through our IR group.
Thanks.
Operator
Great, thank you. And, ladies and gentlemen, that does conclude our conference for today.
Thank you for your participation and for using AT&T’s Executive Teleconference. You may now disconnect.