We have incurred significant losses on our insured products as a result of the economic downturn that began in 2007 and  we expect to incur additional losses in the future. As a seller of credit protection, our results are subject to macroeconomic conditions and specific events that impact the  credit performance of our underlying insured assets. Many of these conditions are beyond our control, including national and  regional economic conditions, housing prices, unemployment levels, interest rate changes, the availability of credit and other  factors. The economic downturn in the U.S. housing and related credit markets that began in 2007 had a significant negative  impact on the operating environment and results of operations for our businesses. Since 2007, we have experienced high levels  of defaults and claims in our mortgage insurance business and our results of operations continue to be negatively impacted by  the mortgage insurance we wrote during the poor underwriting years of 2005 through 2008 (we refer to the mortgage insurance  that we wrote during these years as our “legacy portfolio”).  Although there has been some stabilization of the U.S. economy and improvement in the operating environment for our  businesses in 2012, the U.S. economy and housing market remain in a state of recovery and, in many respects, are weak  compared to historical standards. As a result, it is difficult to predict with any degree of certainty if and when a full recovery of  the economy will occur, including a meaningful reduction in unemployment and a broad and lasting recovery in the housing  market. In light of this, there remains a great deal of uncertainty regarding our ultimate loss performance, which we expect will  depend largely on the performance of our legacy portfolio.  While we expect to experience marginal operating profitability in  our mortgage insurance business in 2013, this projection is based, among other significant factors, on our assumption that  incurred losses will continue to improve significantly in 2013 as the economy and housing market continue to strengthen.  These  assumptions are based on factors that are beyond our control, and therefore, we can provide no assurance whether our  projections will prove to be accurate or if and when we may return to profitability .  In addition to the impact of housing and credit market deterioration, our results of operations and financial condition  could be negatively impacted by natural disasters or other catastrophic events, acts of terrorism, war or other severe conflicts,  event-specific economic depressions or other harmful events in the regions, including in foreign countries, where we do  business. Our financial guaranty portfolio has also been, and continues to be, negatively impacted by deterioration in the credit  markets and the overall economy. See  “Our financial guaranty portfolio has experienced losses as a result of the most recent  economic downturn and is susceptible to further deterioration, which could have a material adverse effect on the capital  adequacy of Radian Guaranty.” Our loss mitigation strategies are less effective in markets where housing values fail to appreciate or continue to decline. The amount of mortgage insurance loss we suf fer depends in part on the extent to which the home of a borrower who has  defaulted on a mortgage can be sold for an amount that will cover the unpaid principal and interest on the mortgage and the  expenses of the sale. In the event of a claim under our standard mortgage insurance policy , we generally have the option of  paying the entire loss amount and taking title to a mortgaged property or paying our coverage percentage. In the past, we were  able to take title to properties underlying certain defaulted loans and sell the properties quickly at prices that allowed us to  recover some or all of our losses. In the current housing market, our ability to mitigate our losses in this manner has been  significantly reduced. Further , in certain cases and subject to certain conditions, we consent to a sale of the property by the  borrower for less than the amount needed to cover the borrower ’s mortgage obligation (a “short sale”), which has the ef fect of  reducing our ultimate claim payment obligation. If housing values decline further on either a broad geographic basis or in the  regions where our business is concentrated, the frequency of defaulted loans resulting in claims under our policies could  increase and our ability to mitigate our losses on defaulted mortgages through short sales or through the resale of properties we  acquire may be reduced, which could have a material adverse ef fect on our business, financial condition and results of  operations. 62