paid during 2001 increased to $97.7 million as compared to $93.3 million during 2000. Underwriting and other operating expenses were  $154.4 million for 2001, an increase of $45.8 million or 42.1% from the $108.6 million reported in 2000. These expenses consisted of policy acquisition expenses, which relate directly to the acquisition of new business, and other operating expenses, which primarily represent contract underwriting expenses, overhead and administrative costs. Policy acquisition costs were $62.4 million in 2001, an increase of $10.9 million from 2000. This reflects an increase  in expenses to support the higher new insurance written volume during 2001 and the continued development of marketing and e-commerce efforts undertaken by the Company. Other operating expenses of $92.0 million for 2001 increased by $34.8 million, representing a 60.9% increase from 2000. This amount reflects an increase in expenses related to contract underwriting. Contract underwriting expenses for 2001 were $44.6 million,  a 120.2% increase from the $20.3 million reported in 2000.  This increase in contract underwriting expenses reflected the increasing demand for this service as mortgage origination volume increased. Consistent with the increase in contract underwriting expenses, other income including income related to contract underwriting services, also increased to $20.4 million in 2001, up from $7.4 million in 2000. During 2001, loans underwritten via contract underwriting accounted for 34.5% of applications, 32.0% of commitments, and 25.8% of certificates issued by Mortgage Insurance as compared to 30.1%, 26.2% and 19.4%, respectively, in 2000. Interest expense for 2001 was $10.5 million, which primarily represented allocation of interest on the $250 million of long-term debt issued during 2001. The effective tax rate for 2001 was 27.9% compared  to 29.4% in 2000. MORTGAGE SERVICES – RESULTS OF OPERATIONS The mortgage services results include the operations of RadianExpress.com Inc. (“RadianExpress”) and the asset-based businesses, conducted through Financial Guaranty’s minority owned subsidiaries, Sherman Financial Services Group LLC (“Sherman”) and Credit-Based Asset Servicing and Securitization LLC (“C-BASS”). The Company owns a 46% interest in C-BASS and  a 45.5% interest in Sherman. C-BASS is engaged in the purchasing, servicing and/or securitizing of special assets, including  sub-performing/non-performing and seller-financed residential mortgages, real estate and subordinated residential mortgage- based securities. Sherman conducts a business that focuses on purchasing and servicing delinquent unsecured consumer assets. Net income for 2001 was $24.3 million. Equity in net income of affiliates (pre-tax) was $42.5 million. C-BASS accounted for $38.1 million (pre-tax) of the total income from affiliates in 2001. These results could vary from period to period due to  a significant portion of C-BASS’s income being generated from sales of mortgage-backed securities in the capital markets. RadianExpress contributed $16.0 million of other income and $17.4 million of operating expenses for 2001. RadianExpress processed approximately 402,000 applications during 2001 with approximately 37,000 of the transactions processed related to net funding services, whereby RadianExpress receives and disburses mortgages funded on behalf of its customers. FINANCIAL GUARANTYINSURANCE –  RESULTS OF OPERATIONS The financial guaranty insurance operations are conducted through Financial Guaranty and primarily involve the direct insurance and reinsurance of municipal bonds and structured finance obligations. Reinsurance is assumed primarily from four primary monoline financial guaranty insurers: MBIA Insurance Corporation, Ambac Assurance Corporation, Financial Guaranty Insurance Company and Financial Security Assurance Inc. (“Monolines”).  The Company’s consolidated results of operations include  ten months of operating results from Financial Guaranty, since  its acquisition occurred at the end of February 2001. As such, comparative information is not included in the discussion. Radian Reinsurance Inc., a subsidiary of Financial Guaranty (“Radian Re”), currently derives substantially all  of its reinsurance premium revenues from the four monolines. Approximately 42.0% of the total financial guaranty gross premiums were derived from these four monolines in 2001.  A substantial reduction in the amount of insurance ceded by one or more of these four principal clients could have a material adverse effect on Radian Re’s gross written premiums and, consequently, its results from operations. Net income for 2001 was $56.1 million. Net premiums written and earned during 2001 were $143.2 million and  $106.5 million, respectively. Net premiums written consisted  of $73.2 million of reinsurance premiums, $47.7 million of premiums from the direct financial guaranty of municipal and non-municipal obligations, and $22.4 million of trade credit insurance and reinsurance. Net premiums earned for 2001 include $58.5 million of reinsurance, $25.9 million in direct financial guaranty, and $22.0 million of trade credit. Included in net premiums earned for the year were refundings of $6.7 million. Net investment income was $50.3 million for the year. The provision for losses was $29.0 million for 2001, which represented 27.2% of earned premium. Policy acquisition costs were $21.8 million for 2001 and other operating expenses were  $21.6 million for the same period. Acquisition and other operating expenses together resulted in an expense ratio of 40.8%. Interest expense of $6.0 million for 2001 represented interest allocated on the Company’s debt financings as well as on  the $75.0 million of long-term debt and on $173.7 million of short-term debt that was retired in May 2001. Net realized gains on sales of investments were $2.0 million for 2001. Net realized losses from the change in the fair value of derivative instruments,  primarily credit default swaps were $4.4 million for 2001. The effective tax rate for 2001 was 27.7%. MANAGEMENT’S DISCUSSION AND ANALYSIS of Results of Operations and Financial Condition >42