Freddie Mac Approval Financial Guaranty Pursuant to the approval by Freddie Mac of RMAI as a special purpose mortgage insurer (the “Freddie Mac  Approval”),  Radian Group is required to make contributions to Radian Guaranty as may be necessary so that the “Liquid  Assets” of Radian  Guaranty, as defined in the Freddie Mac Approval, are at least $700 million throughout the term of the approval.  As defined in  the Freddie Mac Approval, “Liquid Assets” are equal to the sum of: (i) aggregate cash and cash equivalents; and (ii) the fair  market value of the following investments: (a) RMBS guaranteed by Fannie Mae, Freddie Mac or Government National  Mortgage Association; (b) securities rated single A or higher by either Moody’s, S&P or Fitch Ratings with a remaining  maturity of five years or less; and (c) U.S.  Treasury securities with maturities not to exceed ten years, provided that U.S.  Treasury securities with remaining maturities in excess of five years may not exceed ten percent of the Liquid  Assets. As of  December 31, 2012, Radian Guaranty’s Liquid Assets under the Freddie Mac Approval were approximately $868.9 million.  Radian Guaranty maintains significant additional liquid investments that may be converted into Liquid  Assets to ensure  ongoing compliance with the Freddie Mac Approval and we expect to continue to remain in compliance with the Liquid  Asset  requirement of the Freddie Mac  Approval. As of December 31, 2012, Radian Asset Assurance maintained claims paying resources of  $1.8 billion, including  statutory surplus of approximately  $1.1 billion. In July 2012, Radian Asset Assurance paid an ordinary dividend of  $54.0  million to Radian Guaranty. We expect that Radian Asset Assurance will have the capacity to pay another ordinary dividend of  approximately $35.0 million to Radian Guaranty in the third quarter of  2013.  The principal demands for liquidity in our financial guaranty business include the payment of operating expenses  (including those allocated from Radian Group), claim and commutation payments, taxes and dividends to Radian Guaranty .  Radian Asset Assurance could be required under certain circumstances to pay its counterparty the outstanding par amount  with respect to up to four of the insured  TruPs bonds (a “liquidity claim”), which Radian  Asset Assurance then would have the  right to recover to the extent amounts are subsequently paid in respect of the relevant  TruPs bonds. A liquidity claim may arise  if an event of default under the  TruPs bond (e.g., a failure to pay interest or a breach of a covenant requiring the maintenance of  a certain level of performing collateral) existed as of the termination date of the CDS contract.  The current termination dates of  these CDS contracts occur in 2017, but will automatically extend for additional one-year increments (but no later than the  maturity date of the TruPs CDO) unless terminated by the Counterparty . If Radian Asset Assurance were required to pay a  liquidity claim, the Counterparty would be obligated under the CDS to pay Radian  Asset Assurance cash periodically in an  amount equal to any future amounts paid in respect of principal and interest on the insured  TruPs bond. Although there can be  no assurance, we do not currently expect a liquidity claim to occur . At December 31, 2012, the net par outstanding of the  insured TruPs bonds potentially subject to a liquidity claim was $362.9 million.  These bonds had a weighted average rating of  BB. In addition, four of the  Terminated TruPs CDOs commuted pursuant to the CDO Commutation  Transactions had this  liquidity claim feature. Although Radian Asset Assurance is no longer directly obligated to pay a liquidity claim for these  terminated transactions, the CDS entered into by the LPV  with the Counterparty (the “Residual CDS”) includes provisions that  provide the Counterparty with substantially the same economic rights upon the occurrence of circumstances where a liquidity  claim would have been payable by Radian Asset Assurance. Consequently, if one of these circumstances were to occur or would  be expected to occur, Radian Asset Assurance’s projected and actual salvage recovery from the LPV , which as of December 31,  2012, was approximately $76.3 million, may be materially reduced or eliminated.  The principal sources of liquidity in our financial guaranty business are premium collections, credit enhancement fees on  credit derivative contracts and net investment income.  We believe that the cash flows generated by our financial guaranty  subsidiaries will provide these subsidiaries with the funds necessary to satisfy their claim payments and operating expenses for  the foreseeable future.  We believe that we have the ability to fund any operating cash flow shortfall from sales of marketable  securities in our investment portfolio maintained at our operating companies and from maturing fixed-income investments. In  the event that we are unable to fund excess claim payments and operating expenses through the sale of these marketable  securities and from maturing fixed-income investments, we may be required to incur unanticipated capital losses or delays in  connection with the sale of less liquid marketable securities held by our financial guaranty business. 141