Radian Group, the second largest U.S. private mortgage insurer, posted an unexpected third quarter profit of $36.7 million, or 46 cents per share, compared to a net loss of $703.9 million, or $8.82 per share, a year earlier.
Analysts, on average, were expecting a loss of $1.93 per share, according to Thomson Financial data.
Radian attributed the better-than-expected performance to a drop in expenses and a rise in revenue, aided partially by its investment in Sherman Financial, a debt recovery company.
However, the private mortgage insurance business continued to be a drag on Radian’s bottom-line, with elevated losses and rising defaults dampening production.
As a result, the company wrote just $7.5 billion in new mortgage insurance during the quarter, down 22 percent from the previous quarter and nearly half the $13.5 billion originated a year earlier.
On a positive note, 98.4 percent of new insurance written was considered prime, though more than 10 percent of production went to borrowers with Fico scores below 680.
Primary mortgage insurance defaults increased 16 percent from the second quarter to 9.71 percent, nearly double the 5.87 percent default rate seen a year ago.
To combat rising defaults, Radian has continued to tighten guidelines, with just three percent of third quarter production above 95 percent loan-to-value, compared to 31 percent a year earlier.
The company has also launched a series of loss mitigation initiatives, including placing staff on-site at large mortgage servicers to expedite solutions.
Shares of Radian were up $1.31, or 37.11%, to $4.84 in early afternoon trading on Wall Street.