Five Questions with S.A. Ibrahim, CEO, Radian Group Inc.
Radian Group Inc. (NYSE: RDN) is a holding company that conducts its businesses through two major subsidiaries, Radian Guaranty Inc. and Clayton Holdings LLC. Radian Guaranty provides private mortgage insurance to protect lenders from default-related losses, facilitates the sale of low-down-payment mortgages in the secondary market, and enables homebuyers to purchase homes more quickly with down payments of less than 20 percent. Clayton Holdings provides services and solutions to the mortgage and real estate industries, including information and services that financial institutions, investors, and government entities use to evaluate, acquire, securitize, service, and monitor loans and asset-backed securities.
S.A. Ibrahim became Radian’s CEO in 2005. Under his leadership, Radian has doubled its private mortgage insurance market share since 2007, and written more than $100 billion of high-quality new business. Before joining Radian, Ibrahim was CEO of GreenPoint Mortgage, which during his tenure went from a small mortgage originator to one of the leading U.S. mortgage originators. Ibrahim holds an MBA in finance from the Wharton School of the University of Pennsylvania, and a BE in engineering from Osmania University in India.
The private mortgage insurance (MI) sector provided significant loss protection during the downturn. How should the value of that protection play into GSE reform?
By the nature of our business we are committed to providing liquidity in good as well as challenging times and deserve to be pillars of a strong, stable and robust future housing finance market—one that relies on private capital and does not expose taxpayers.
Members of Congress have introduced various proposals to wind down the GSEs and replace them with a new housing finance system. Private MI is a practical, proven, incremental, and appropriate way to assist with the orderly phase down of the GSEs, Fannie Mae and Freddie Mac, and reduce the government’s role in the housing market. Private MI ensures that lenders, investors, and taxpayers receive even greater protection from the losses that result from borrower default, and that the federal government only steps in in the event of a truly catastrophic event.
In the past year, mortgage insurance has helped more than half a million homeowners purchase or refinance a mortgage. Nearly half of those homeowners who purchased MI were first-time homebuyers, and approximately 40 percent were borrowers with incomes below $75,000. And about $500 billion in GSE mortgages currently outstanding have protection from MI coverage. Mortgage insurers have covered over $44 billion in claims on GSE loans since the GSEs entered conservatorship, resulting in a substantial savings to taxpayers.
Accurate assessment of consumer credit risk is crucial to Radian’s work insuring private mortgages and the ability to securitize those mortgage loans. What is your position on the ability to choose whichever validated credit scoring model is most accurate for any given application or portfolio?
Providing an accurate representation of mortgage risk for a borrower is certainly an important factor in deciding which credit scoring engines to use. This includes making sure that we are using the most predictive factors in the scorecard to ensure that we reduce errors resulting from rejecting otherwise creditworthy borrowers, while also managing borrower default risk.
How central are diverse populations to the U.S. housing market recovery? How central is that segment to the overall recovery of the U.S. housing market, and how well is it rebounding from the recession?
According to the Harvard Joint Center on Housing Studies’ 2015 report on the State of the Nation’s Housing, the homeownership rate slid for the 10th consecutive year in 2014 to 64.5 percent, and continued to fall in early 2015 with a first-quarter reading of just 63.7 percent—the lowest quarterly rate since early 1993. However, nearly 93 percent of Americans still desire and expect to buy a home.
This report anticipates that over the next 10 years (2015-2025) minorities will make up 76 percent of household growth in America and fully 85 percent over the next 20 years. That’s a big change from the overall household composition in recent decades, which even in 2012 was less than 30 percent minorities. It underscores a shift, already well underway, toward a permanently more diverse nation; there are already more minority births than Caucasian births in the U.S., and Census researchers believe that the makeup of the U.S. will become “majority minority” in 2044.
Of the 17 million new households expected to be created by 2025, it is projected that roughly 41 percent, or 7.1 million, will be Hispanic; 18 percent, or 3.2 million, will be African American or Black; and 16 percent, or 2.7 million, will be Asian or other minorities. As we work to help develop responsible, sustainable homeownership in America, it is critical that we effectively reach these groups—and to do so, we need to make sure we understand their backgrounds and priorities, adapt our services with those factors in mind, and build strong personal relationships.
At Radian, we believe deeply in the power of building strong relationships, and that’s why we are proud to have exclusive partnerships with leading industry organizations focusing on the African-American, Asian, and Hispanic communities, such as the National Association of Real Estate Brokers (NAREB), the Asian Real Estate Association of America (AREEA), and the National Association of Hispanic Real Estate Professionals (NAHREP). These market-focused trade associations in the real estate and housing industry are staunch advocates of sustainable homeownership in America. Working with these esteemed groups has enabled us to join together in a collective effort to ensure that the new generation of American homebuyers is well informed about their home buying options, particularly for those low- to medium-income borrowers with limited savings for a down payment.
Radian’s mortgage insurance business helps homebuyers who have strong credit but lack the typical 20 percent down payment required to purchase a home. In many cases, these are hardworking families trying to save enough money to put down on their first home. These diverse, first-time homebuyers are critical to the overall recovery of the U.S. housing market.
How does the recent acquisition of Clayton Holdings fit into Radian’s core business strategy?
The downturn showed us that manufacturing and servicing a loan are as important as credit criteria and underwriting. Clayton’s capabilities in assessing credit and providing [loan and servicer] surveillance along with Radian’s credit enhancement provides a complete picture of loans and allows us to help our customers not only to originate better loans but also to manage their performance. It is most exciting to see the responses we are getting from our customers who, in addition to our core mortgage insurance product, are now able to access a complete range of services from compliance, monitoring, servicing, and accurate valuation.
For Radian, Clayton adds a diversified source of fee-based revenue, and also broadens our participation in the residential mortgage market value chain with services that complement our MI business. With a clear focus on our core strengths, we are better positioned to leave our legacy exposure behind and drive long-term value, both from our large and successful mortgage insurance business as well as to leverage our strong relationships and our increased capabilities in broadening our future sources of revenue.
You just marked your tenth anniversary as Radian CEO, a decade that has seen more than its share of market turbulence. What lessons can you share from that experience?
I consider it an honor and a privilege to have enjoyed 10 years at Radian. I am proud of the fantastic people I work with every day and I credit our success to them. Some of the lessons that I can share are:
• Remember that the team is always more important than the leader, because without the team, the leader alone cannot accomplish anything. So, never believe or act like you are more important than your team and realize that you have to lead and encourage the team without getting in their way.
• As the leader, you have to create a vision that is shared by the entire team while giving team members the freedom to do things in their way, as long as they remain true to the vision. It is important that all the disparate paths meld into a whole that is larger than the sum.
• Do not allow any negativism to creep in from inside or outside. Protect against internal naysayers by weeding them out quickly, but leave the truly wise contrarians in place. Protect against external discouragement by believing in your own vision, but periodically measure progress using objective benchmarks.
• Consider many ideas, but keep your focus on the most important results you want to achieve. Your focus should also not be distracted or compromised by things that you cannot change—focus purely on the things you can improve.
• Regardless of what you learned in business school, the most important assets in your business are your customers and employees, even if they do not show up as a line item on your balance sheet.