Mortgage Loans Held for Sale

6 Months Ended

Jun. 30, 2024

Discontinued Operations and Disposal Groups [Abstract]

The carrying value of mortgage loans held for sale owned by Radian Mortgage Capital totaled $458 million and $33 million at June 30, 2024, and December 31, 2023, respectively, and is based on fair value. The estimated fair value of our mortgage loans held for sale is subject to changes in mortgage interest rates from the date we agree to purchase the mortgage loan through the date we agree to sell the mortgage loan. We elected the fair value option for our mortgage loans held for sale to mitigate income statement volatility and allow for consistent treatment of both loans and any associated hedges or derivatives. Net gains (losses) associated with our mortgage loans held for sale and any related hedges are included in net gains (losses) on investments and other financial instruments in our condensed consolidated statements of operations.

As of June 30, 2024, our mortgage loans held for sale consisted of 516 mortgage loans with a total unpaid principal balance of $454 million, related to properties in 39 states and the District of Columbia. The majority of these loans are non-agency loans, with balances in excess of the GSEs’ conforming loan limits and with credit risk characteristics commensurate with the prime jumbo private label securitization market. As of June 30, 2024, none of these loans were greater than ninety days delinquent or in nonaccrual status. Interest earned on mortgage loans held for sale is included in net investment income in our condensed consolidated statements of operations.

Further, as of June 30, 2024, the Company had commitments to purchase and fund additional mortgage loans with a total unpaid principal balance of $391 million. Prior to the settlement and funding of these loan purchases, any unrealized net gains (losses) related to these commitments are recorded as derivative assets or liabilities on our consolidated balance sheets.

The following table reflects the outstanding derivative instruments related to our mortgage loan activity as of the dates indicated.


Derivative instruments

	June 30, 2024						December 31, 2023
	Notional (1)		Fair Value				Notional (1)		Fair Value
(In thousands)			Derivative Assets		Derivative Liabilities				Derivative Assets		Derivative Liabilities
Forward mortgage loan purchase commitments	$	391,434	$	132	$	—	$	83,962	$	708	$	—
Hedging instruments (2)
Forward RMBS purchase contracts (3)	$	516,600	$	3,227	$	—	$	51,100	$	715	$	817
Interest rate swap futures contracts (4)	59,000		1,329		—		7,300		489		—

(1)Notional amounts provide an indication of the volume of the Company’s derivative capacity. The notional amount is the face amount of our contracts and does not represent our exposure to credit loss and therefore is not reflected on our condensed consolidated balance sheets.

(2)All of the derivatives used for hedging purposes are interest rate derivatives subject to master netting agreements and are considered economic hedges.

(3)Derivative assets include cash collateral receivables of $5 million and $715 thousand as of June 30, 2024, and December 31, 2023, respectively.

(4)Derivative assets include cash collateral receivables of $2 million and $720 thousand as of June 30, 2024, and December 31, 2023, respectively.

Included in our net gains (losses) on investments and other financial instruments in our condensed consolidated statements of operations are net gains (losses) related to our mortgage loans and related hedging activities, which consisted of the following.


Net gains (losses) on mortgage loans held for sale

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2024		2023		2024		2023
Net realized gains (losses)
Mortgage loans	$	(1,252)	$	9	$	(1,189)	$	9
Mortgage loan hedging activities	3,528		77		2,745		(39)
Total realized gains (losses)	2,276		86		1,556		(30)

Mortgage loan servicing rights resulting from loan sales	1,188		—		1,498		—

Change in unrealized gains (losses) on mortgage loans and related derivatives sold or redeemed	155		(91)		(49)		33

Unrealized gains (losses) on mortgage loans and related derivatives still held
Mortgage loans (1)	(1,609)		(167)		(611)		(94)
Mortgage loan hedging activities	(2,060)		266		(2,060)		266
Total net unrealized gains (losses)	(3,669)		99		(2,671)		172
Net gains (losses) on mortgage loans held for sale	$	(50)	$	94	$	334	$	175

(1)Includes net gains (losses) on mortgage loan commitments accounted for as derivatives prior to settlement.

We primarily fund the purchases of our mortgage loans held for sale with amounts borrowed under our mortgage loan financing facilities. Expenses related to these facilities are included in interest expense in our condensed consolidated statements of operations. See Note 12 for additional information on these facilities and their related terms and covenants.

Net investment income earned on our mortgage loans held for sale and interest expense incurred on our mortgage loan financing facilities consisted of the following.


Net interest on mortgage loans held for sale

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2024		2023		2024		2023
Interest income	$	5,411	$	574	$	7,204	$	768
Interest expense	5,108		400		6,546		477
Net interest on mortgage loans held for sale	$	303	$	174	$	658	$	291

In addition to the debt covenants under its financing facilities, Radian Mortgage Capital is also subject to certain requirements established by state and other regulators and loan purchasers, including Freddie Mac, such as certain minimum net worth and capital requirements. The most restrictive of these financial requirements requires Radian Mortgage Capital to maintain a minimum tangible net worth of $4 million. To the extent these requirements are not met, these parties may exercise certain remedies, which may include, as applicable, prohibiting Radian Mortgage Capital from purchasing, selling, or servicing loans. As of June 30, 2024, Radian Mortgage Capital was in compliance with all such requirements.