Radian Auditor Deloitte & Touche to Terminate Contract With Bond Insurer

In yet another blow to the Radian Group Inc., the firm’s auditor has said it will step down. Radian is trying to rebuild its reputation in light of a failed merger and recent criticism over its subprime mortgage exposure. Deloitte & Touche LLP declined to stand for reappointment and will terminate its contract with Radian shortly after the Philadelphia-based guarantor reports its third-quarter earnings, according to documents Radian filed Tuesday with the Securities and Exchange Commission.Radian said it is “currently engaged in discussions with audit firms to replace Deloitte” and that it expects to announce an agreement with a new auditor “in the near future.”“The general time frame for Deloitte’s departure was established several months ago, with their current engagement scheduled to end around the timing of the closing of our now terminated merger with [MGIC Investment Corp.],” Radian spokeswoman Mona Zeehandelaar said in a prepared statement. “We had not formally re-engaged or extended Deloitte’s current engagement before we mutually agreed to end our relationship. Our decision not to extend the engagement was not the result of any material disagreement between us and Deloitte and is not indicative of any problems with our internal controls and procedures.”Deloitte did not return calls seeking comment.In its SEC disclosure Tuesday, the guarantor pointed out that the Deloitte audit reports for Radian’s year-end consolidated financial statements in 2005 and 2006 were free of any adverse opinions or disclaimers.In mid-August, Radian filed an amendment to its second-quarter earnings statement, saying that Deloitte was reviewing documentation to decide if the second-quarter earnings should have included an impairment as large as $518 million on Radian subsidiary Credit-Based Asset Servicing and Securitization LLC, or C-Bass. Radian announced the impairment just days after going public with its second-quarter earnings.But Radian followed with a second amendment to its second quarter earnings, saying that Deloitte was satisfied and that no changes would be made to include a C-Bass impairment in its second-quarter earnings.The impairment — essentially a write-down of the value of a company’s investments — sparked a series of events that eventually dissolved the intended merger that Radian had planned with mortgage insurer MGIC. MGIC said it would also take a $516 million impairment on C-Bass, a joint venture between the two companies.While the majority of Radian’s business comes from its mortgage insurance line, market pressure on the company also led to added scrutiny of its municipal bond subsidiary Radian Asset Assurance Inc.Fitch Ratings downgraded the insurer financial strength rating for Radian Asset to A-plus from AA, and the usefulness of Radian’s bond insurance diminished, based on comparisons of the yields on Radian-backed bonds to standard, high-grade muni curves.These trading differentials, which had spiked above 100 basis points a few weeks ago, had come back for deals priced in recent weeks.The Radian parent company’s stock price dropped $2.46, or 9.47%, in trading yesterday to close at $23.53.Radian is scheduled to announce its unaudited third-quarter earnings at the end of October, though a specific date has not yet been set.