The Darkest Hour

How the recession made the Radian Group a better, stronger company

Ted Hoffman, Executive Vice President, General Counsel & Corporate Secretary, Radian Group

When someone sees a friend who’s recovered from a health crisis, it’s common to say, “You look better than ever.” It’s a nice thing to say and it might even be true, but it doesn’t acknowledge some of the most important parts of what the friend has been through, specifically the lessons learned from surviving life-threatening challenges.

The Radian Group has certainly never been on life support, but it had quite a scare in 2008 when the housing market collapsed. It is projected that private mortgage insurers will ultimately pay approximately $50 billion in claims as a result of the downturn. Half of the insurers in operation at the time have gone out of business. Radian’s own two-year default rate for flow insurance written from 2006 to 2008 nearly tripled compared to the previous five years. And like that friend with a health scare, it learned some very valuable lessons on its way back to being a healthy, thriving company.

According to Ted Hoffman—Radian’s executive vice president, general counsel, and corporate secretary—prior to the mid-2000s, the company had been operating under the typical cultural constraints of a large financial company. The crisis changed that.

Hoffman had just become general counsel in the middle of 2008 and immediately had to try to bring order to a chaotic time. This included making sure that decision makers understood the realities of the complex and potentially disastrous circumstances the company was facing. He also had to ensure that they stayed aware of the legal and regulatory requirements and responsibilities that went along with the options that were available for dealing with the chaos.

At the same time, Hoffman realized that the culture of the company had begun to change. In addition to doing what was required to maintain compliance, as well as the company’s survival, everyone was becoming more proactively, constructively, and collaboratively engaged.

Many companies became paralyzed during such times, but the new corporate spirit resulted in Radian being in a constant state of readiness for whatever situations arose. “The sand was shifting under our feet, so we adopted clear strategic objectives to establish a path forward,” Hoffman says. “Everyone made sure we were collectively prepared to respond to new opportunities at any given time.”

Hoffman admits that the actions the company ultimately undertook “didn’t translate into many home runs.” But there were enough successes to steady the company’s course and create confidence and positive momentum. “We pursued everything that was within our control for handling core operations, liquidity, and capital management,” he says. “We explored so many alternatives that it became one of the most creative and innovative times in our history.”

One of the boldest decisions was making Radian’s financial guaranty business a subsidiary of Radian Guaranty Inc., its principal mortgage insurer. This provided more than $1 billion in statutory capital to the mortgage insurance business, which increased its chances for survival and return to profitability.

The financial crisis also forced the creation of a much more open corporate environment in which everyone was contributing ideas. Anyone—including the newly appointed general counsel—was encouraged to suggest alternatives and innovations. Hoffman describes the new culture as being passionate, flexible, and less hierarchical than most, with “a willingness to roll up your sleeves and get your hands dirty.”

Part of the bonding process that occurred during that time included finding ways to manage the ongoing stress. One way the legal department coped was making occasional excursions to find the best cheesesteak in south Philadelphia. “We had the kind of camaraderie that comes from going through a battle together,” Hoffman explains. “So as a group you find simple ways to boost morale and relieve the strain.”

The new corporate culture also bred a sense of confidence that the company can survive no matter what challenges it faces. This has led to a more proactive, energized stance in the market, such as Radian’s recent acquisition of Clayton Holdings, a provider of outsourced solutions to the mortgage and real-estate industries. Rather than cautiously enjoying a more stable economy and return to profitability, Radian chose to push forward, complement its core products, and launch a completely new business segment.

Hoffman points out that this is actually a continuation of the company’s ongoing commitment to building long-term stockholder value. It still identifies incremental market price objectives and then analyzes the best ways to achieve them. However, as a result of Radian’s experience during the crisis, more options and innovative approaches are now considered when mapping out the optimal means for reaching the company’s goals. “Basically we figure out where we want to be and then find the best ways to knock down obstacles that are in the way,” Hoffman says. “It seems simplistic, but we learned that simple and clear can often be the most effective ways to move forward.”

The approach is working. Radian’s market share, which had fallen below 17 percent during the worst of the crisis, was up to more than 22 percent in the second quarter of 2014. The company has also become the industry’s largest private mortgage insurer (based on insurance-in-force). It would appear that with its open, flexible, more responsive, and innovative culture in place, Radian is also well positioned to prosper for at least a few more generations.