Q2 2020 Radian Group Inc Earnings Call
[music].
Well I can talk radio second quarter 2020, I call. My name is Sofia operator for today's call.
Hi, all participants are not listen only mode. Later, we'll conduct a question answer session.
During the question answer session I'd be happy question. Please press Star then one and you touched telephone.
Please note that this conference is being recorded.
I'll now turn the call over to dumping and senior Vice President Investor Relations Mr. opinion, you may begin.
Thank you.
Welcome to Radiant second quarter 2020 conference call.
Our press release, which contains radiants financial results for the quarter was issued last Friday evening, and that's posted to the Investor section of our website at Www Dot Radian dotcom.
This press release includes certain non-GAAP measures, which will be discussed during today's call, including adjusted pre tax operating income.
Adjusted diluted net operating income per share.
Adjusted net operating return on equity and real estate adjusted EBITDA.
That completes description of these measures and the reconciliation to GAAP maybe found in press release exhibits happened Gi and on the Investor section of our website. In addition, we have also included a related non-GAAP measure real estate adjusted EBITDA margin, which we calculate side to.
Real estate adjusted EBITDA by GAAP total revenue for the real estate segment.
This morning, you will hear from Rick Thornbury, Radians, Chief Executive Officer, and crank call Chief Financial Officer also on hand for the Q in a portion of the call is Derek Brummer President of Radian mortgage due to the current environment all of our speakers this morning, our remote.
I'd ask that you please excuse any sound quality, our technical issues that may arise during the call.
Before we begin I would like to remind you that comments made during this call will include forward looking statements. These statements are based on current expectations estimates projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially.
For a discussion of these risks. Please review the cautionary statements regarding forward looking statements included in our earnings release and the risk factors included in our 2019 form 10-K as updated in our quarterly report on form 10-Q, four the second quarter 2020.
And subsequent reports filed with the FCC.
These are also available on our website now I would like to turn the call ever in Iraq.
Thank you John and good morning. Thank you all for joining us today for your interest in radio. These are clearly a press or the other times before I talk about our second quarter financial results I'd like to address the business as economic environment. There. We are operating on Tonight first I'd like to discuss the current state of our business operations in March.
At the onset of the Kobin like team pandemic, we'd ask the vast majority of our team to work from home and we committed to a conservative approach focus on employee safety and business continuity, while there's no playbook for this environment I'm pleased to report that our technology and business continuity plans were in place that our people are.
We're ready to provide our customers with the same high quality service expect from rating all while working remotely without missing a beat I'm very proud of the resilience of our businesses and the strength and commitment of our one radian unified team I can say with confidence that our businesses are operating well with strong <unk>.
Some during this unprecedented time next I'd like to address the economic environment.
Negative impact of the Cobot 19 pandemic on the overall economy has resolved with a sharp increase in other employment claims as well as higher mortgage suppose including as a result, a borrowers participating in the mortgage forbearance programs.
The government has provided a broad support to help you use the burden of the crisis. We believe the the programs implemented through the Cures Act. Another program specifically the financial assistance through Forgivable business loans taxpayer stimulus expanded on increased unemployment benefits mortgage forbearance programs a loss mitigation.
Sure workout options and the suspension of foreclosures and evictions hi than should continue to provide meaningful support to mortgage borrowers through this temporary hardship and help them we're back in their homes.
The economic environment has also fueled record low interest rates these low rates impact our business in several ways. We've seen a significant increase in refinance activity, which drives higher new insurance written as well as lower persistency within our existing mortgage insurance portfolio and this low interest rate environment has also contributed.
To a strong purchase mortgage market, which we've seen recover an impressive fashion from the cobot 19 related disruption earlier this year.
The lower rates also reduce our investment portfolio yield over time, as we look to reinvest matures assets and operating cash flows I know that the uncertainty an unprecedented nature of this environment has made it difficult to assess the impact on our business in order to address one question posed by many of you during the quarter, Let me explain why we.
I think today's environment is different than the great financial crisis. There are several factors that we believe make the.
The impact of this environment on our business very different first the financial crisis of 2008 was a housing lot of economic crisis. We entered the current economic cycle with a strong balance of healthy housing market in terms of demand supply at home values. We believe that many borrowers are in a more sustainable home.
Ownership position heading into the current economic downturn, where they have built up significant equity in their home and we expect that these trends will continue to have slate the mortgage insurance industry from claims and ultimate losses.
Second the financial crisis was fueled by toxic products poor underwriting and weak servicing standards the quality of mortgage products underwriting and servicing standards has improved dramatically over the past decade, your regulatory reform to help ensure sustainable homeownership and has resulted in increased quality transparency.
Uncertainty of mortgage transactions.
Third as opposed to last financial crisis, where foreclosures and of evictions were prevalent today. There is both industrial alignment and government support for homeowners with programs in place to help them successfully manage juice environment and remain in their hopes.
Fourth heading into the financial crisis, the quality of our insurance portfolio was vastly different than it is today today's portfolio consistent high quality loans that are priced a more granular risk attributes with an average FICO score of 740 work as compared to our 2007 book that represent the Mark.
At that time, including low documentation subprime and all t. loans with lower FICO scores.
The capital structure for the industry during the financial crisis was materially different than it is today.
The mortgage insurance industry has transformed over the past decade, so consistently applied risk based capital framework for the industry through P. Myers and finally prior to the financial crisis. The industry was on the originally hold portfolio level leveraging rate card pricing today, we are in aggregate managing disturbing.
Portfolio model, where we actively manage the risk profile of our portfolio through customer loan analytics granular risk based pricing they risk distribution to capital partners, such as mortgage mortgage insurance linked boats and quota share reinsurance.
The combination of enhanced capital levels and active portfolio management puts us in a very different position today versus the financial crisis overall.
Housing and mortgage markets. They are very different than great financial crisis of positive way and we believe the mortgage insurance industry as well prepared to navigate the suburban.
Turning now to the second quarter as expected our results were significantly impacted by an increase in the number of new defaults during the quarter, which resulted from a pandemic economic environment and forbearance programs. Our financial results include a net loss of $30 million or 15 cents for sure and other adjusted pre tax operating loss.
Per share of 36 cents book value grew 13% year over year to $20 at 82 cents for sure and our book value grew 52 cents in the second quarter of 20 to 20 as a result of unrealized gains and other comprehensive income.
The loss this quarter was primarily.
Due to our provision for losses of $304 million the loss provisions driven by an increase in new defaults at our assumptions related to the ultimate default to claim rate, while there's no historical experience with defaults under forbearance programs during a pandemic.
We develop our loss estimate by using our market and low level analytics factoring in an estimate for the benefit from loss mitigation efforts put in place by the Geo seasoned loan servicers and apply it our judgment, we understand that the ultimate loss will be influenced by the depth and duration of this economic cycle.
We will continue to assess our actual experience against our estimate as we progress through the cycle.
In terms of the most recent trends I'm pleased to report that we saw a decline in the number of new defaults and an increasing number of cures reported to us in July.
Resulting in a net decline of outstanding defaults of 3.3% ending with 67433 total defaults.
At July 31st.
Turning now to the broader mortgage and real estate market during last quarters earnings call. We had predictive slowdown a purchase loan volume based on the economic straining. The cobot 19, I'm pleased to report the based on recent performance and trends, we're seeing the U.S. housing market rebound with June existing home sales increasing 21.
Our son after three months of the clients based on the latest data from our own rainy and home price index. There was a 10% increase a new real estate listens and June versus maybe 35% increase and home sales and while there has been localized volatility in home prices during the pandemic prices overall have remained.
Resilient.
Based on increased purchase loan demand combined with low interest rates driving strong refinance volume we wrote record volume.
Of new primary insurance business of $25.5 billion them in the second quarter, while the high volume or refinances during quarter did drive.
Persistency lower and slowed the growth of our 241.3 billion dollar insurance portfolio. It's important to note that this large and high quality portfolios grow at approximately 5% year over year is also worth noting that in July we set a monthly denied w. record for the third time this year.
With more than 70% of volume from purchase loans, given the current environment. The strong it w. during the second quarter in a significant commitment pipeline coming into the third quarter. We now expect to write new Allied business in 2020 or more.
More than $75 billion.
And our real estate business reported segment revenues of $26.1 million, we continue to see growth.
And our title business with a strong sales pipeline of large clients. However, our real estate valuation and asset management businesses have experienced slowdowns as a result of the Kogut 19 environment.
Consistent with our strategy, we continue to make investments at our data analytics and technology platforms across our title valuation asset manager and real estate businesses to position our products and services to address evolving market opportunities.
Given today's environment, our capital position is critical we understand that there continues to be uncertainty in the overall economic recovery path. Accordingly, we believe we are well position to leverage the strength of our overall capital position to navigate this environment.
Through the cycle during the second quarter of 2020, we strengthened our available liquidity by extending the term of our existing credit facility and issuing $525 million of senior notes due 2025.
At June Thirtyth, Radian group, maintaining a strong capital position with $1.1 billion of available liquidity. We also remain focused on rating guarantees p. Myers position are available assets under Pmiers.
Were approximately $4.2 billion at June Thirtyth, resulting in a cushion of approximately $1 billion or 31% above our minimum required offsets.
In terms of risk distribution, we have a clear track record of distributing risks through the capital and reinsurance markets when we see the opportunity.
We continually monitor the markets and evaluate opportunities today, the strength of our capital position is even more valuable given the economic environment and enables us to continue riding high quality business through the cycle without dependence on these markets, we will maintain our strategy of accessing these mark.
That's for risk to distribution on terms that are most economically attractive to our company.
Given that we expect the timeline for the ultimate resolution of a pandemic related defaults could span multiple years, we believe that our current capital resources combined with the continued future financial contribution from our valuable insurance portfolio positions us well, we plan to continue to take a conservative approach leveraging our external.
Earnings to manage the business operationally and financially.
Now I'd like to turning the call over to Frank for details of our financial position.
Thank you Rick and good morning, everyone to recap our financial results issued Friday evening, we reported a GAAP net loss of $30 million or 15 cents per diluted share for the second quarter of 2020 as compared to net income of 70 cents per diluted share.
In the first quarter of 2020, and net income of 78 cents per diluted share in the second quarter of 2019.
Adjusted diluted net operating loss was 36 cents per share in the second quarter of 2020 as compared to adjusted diluted net operating income per share of 80 cents in the first quarter 2020, and the second quarter of 2019.
I'll now turn to the key drivers of our revenue.
As Rick mentioned earlier, our new insurance written was $25.5 billion during the quarter compared to $16.7 billion last quarter and $18.5 billion in the second quarter of 2019.
Our second quarter 2020 volume is our highest level of quarterly new insurance written on a flow basis.
Primary new insurance written for Refinances was 44% of total new insurance written for the second quarter of 2020 compared to 34% in the first quarter of 2020 and 10% for the same quarter in the prior year.
Direct monthly and other recurring premium policies were 85% of our new insurance written this quarter and increased from 81% for the first quarter of 2020, and 83% for the second quarter a year ago.
In total borrower paid policies were 98% of our new business for the second quarter.
Primary insurance in force decreased slightly to $241.3 billion at the end of the quarter as compared to $241.6 billion in the first quarter of 2020.
With year over year insurance in force growth of approximately 5%.
The quarter over quarter decrease was due primarily to low persistency driven by high refinance activity.
Our 12 month persistency rate of 70.2% decreased from 75.4% in the prior quarter and 83.4% in the second quarter of 2019.
Our quarterly annualized persistency rate was 63.8% this quarter a decrease from 76.5% at the first quarter of 2020 and 80.8% in the second quarter of 2019.
The year over year decline in quarterly annualized persistency is driven by increased refinance activity observed in the quarter.
Given the current mortgage rate environment. It is expected that near term persistency will remain below long term trends.
Moving now to our portfolio premium yield as detailed on slide 10.
Our direct enforce premium yield was 44.3 basis points this quarter compared to 46.1 basis points last quarter, and 47.9 basis points in the second quarter of 2019.
As noted in previous quarters, we expect our in force portfolio yield to continue to decline due to the difference in credit mix and associated premium rates of todays Eni W.
Relative to prior vintages.
Recent trends of lower persistency and higher levels of new insurance written have contributed to a faster rate of change and the yield up our mortgage insurance portfolio.
The timing and magnitude of future portfolio yield changes will continue to depend on several factors, including the volume mix and pricing of new business relative to volume and mix of cancellations and prepayments in our portfolio.
Our level of single premium cancellations increased to 8.2 basis points compared to four basis points in the first quarter 2020, and 2.8 basis points of yield in the same quarter a year ago.
The increase in single premium cancellations is due to higher refinance activity driven by the low interest rate environment.
The negative yield impact of ceded premiums net of profit Commission was 11.5 basis points as compared to 4.5 basis points in the first quarter of 2020, and 4.3 basis points in the same quarter a year ago.
This change of seven basis points compared to prior quarter is made up of two components.
The primary driver as a reversal of previously accrued profit Commission, which declined from a positive $16.4 million in the first quarter, two a negative $10.6 million and the current quarter as noted on press release exhibit al.
This $27 million decline on a linked quarter basis is due to the reduction of expected profit commissions related to elevated new defaults observed in the quarter.
And the associated impact on our ceded loss provision.
It is important to note. This adjustment is offset by a dollar for dollar increase in ceded losses, which reduces our provision for losses.
This change in profit Commission accounted for 4.6 basis points of the change in ceded premium portfolio yield compared to the first quarter of 2020.
The other component of the change in ceded premium yield was attributable to higher single premium acceleration, resulting in another two and a half basis points.
With regard to our pricing on new business, we remain focused on maximizing economic value and generating attractive risk adjusted returns, which are targeted to be in the mid teens.
These targeted returns do not include the impact of insurance like notes, but do incorporate the impact of our single premium quota share reinsurance program, which is a forward commitment by our panel of reinsurers and is in place at the time of loan origination.
Net premiums earned were $249.3 million in the second quarter of 2020 compared to $277.4 million in the first quarter of 2020 and $299.2 million in the second quarter of 2019.
The decrease of 10% on a linked quarter basis is primarily attributable to the adjustment to accrued profit commission due to increased loss provision, which was partially offset by an increase in single premium policy cancellations again. It is important to note that this adjustment to accrued profit Commission was off.
Offset by an increase in ceded losses under our single premium quota share reinsurance agreement during the period, which reduced our provision for losses and thus the net impact was not material to our results for the quarter.
Our net premiums earned decreased 17% as compared to the second quarter in 2019.
In addition to the profit Commission impact as noted this decrease was primarily attributable to a positive cumulative adjustment in the second quarter of 2019 related to our single premium policies, which resulted in a $32.9 million of additional net premiums earned in that quarter.
Total real estate segment revenues was $26.1 million for the second quarter of 2020, representing a 9% decrease compared to $28.6 million for the first quarter of 2020, and a 5% decrease compared to $27.6 million from the second quarter of 2019.
Our reported real estate adjusted EBITDA for the second quarter of 2020 was a loss of 700 in $2000.
Our year to date revenue, however was up 8% year over year.
Our investment income this quarter of $39 million was down 5% from the prior quarter and 12% from the same quarter prior year due to lower investment yields which were partially offset by additional investments from underwriting cash flow and proceeds from our may 2020 senior debt offering.
Question, there was a significant market value increased during the quarter of approximately $246 million.
At quarter end the investment portfolio duration was approximately 4.1 years up slightly from the prior quarter.
Moving now to our loss provision and credit quality.
As noted on slide 13, the provision for losses for the second quarter of 2020 increased to $304 million compared to $35.2 million and the first quarter of 2020 and $47.2 million in the second quarter of 2019.
As noted earlier, our ceded losses, which is a benefit under our reinsurance programs also increased to $39.6 million in the second quarter of 2020 compared to $2 million in the first quarter of 2020 and $1.9 million in the second quarter of 2019.
As shown on slide 14.
We had approximately 63000, new defaults in the second quarter of 2020 as compared to approximately 10000 in the first quarter of 2020, and approximately 9000 and the second quarter of 2019.
Also as shown on slide 16.
Approximately 90% of these new defaults were reported to be in a forbearance program as of June Thirtyth 2020.
It is important to note that these new defaults were from recent origination vintages and as a result, the average risk written on these policies is higher than our recent average claims paid experience, which had been more heavily concentrated on older vintages.
These new defaults were the primary driver of our provision for losses during the second quarter as the reserve development on prior period defaults was not material.
The default to claim rate assumption on new defaults was increased to 8.5% for the second quarter of 2020, an increase from 7.5% for the first quarter of 2020 and 8% for the second quarter of 2018.
The increase in the new default to claim rates as reflective of the current level of uncertainty in the economic landscape and the uncertainties surrounding the magnitude and timing of any further economic deterioration should it occur.
While we have drawn analogies that this pandemic to natural disasters in the past it has become clear to us that the broader economic risks associated with this global pandemic, our unique insofar as we expected the economic impact will be longer in duration.
Thus far however, we have seen strong government support, including forbearance programs and foreclosure moratoriums that should be significant mitigants to these risks and are expected to provide significant loss protection by allowing homeowners to stay in their homes, thereby avoiding claims.
The new defaults, we saw in the quarter were of a much higher weighted average FICO than in previous quarters and were predominantly from newer vintages with over half coming from vintages 2017 and newer.
It is important to remember that our reserve estimate is based upon the best available information we have at the time, which includes our assessment of the quality and potential volatility of future economic estimates and the range of outcomes within our own proprietary models.
As we have all observed since the beginning of this pandemic the variability and frequency of change. Many economic estimates has been elevated and continues to vary widely.
Since our loss reserves are a point in time estimate it is subject to change at each reporting period based upon available information at that time.
Keep in mind that we are estimating the amount of future claim payments, which under normal circumstances wont be realized for several years.
We have also shared additional information on forbearance program mechanics, and participation rates for our portfolio on webcast Slide 16 again. These forbearance programs are positive for our industry as they are intended to keep people in their homes.
Now turning to expenses.
Other operating expenses were $60.6 million in the second quarter 2020, compared to $69.1 million in the first quarter of 2020 and $70 million in the second quarter of 2019.
The decrease in operating expenses on a linked quarter basis was primarily driven by lower share based incentive compensation.
The decrease in expenses compared to the second quarter of 2019 was also driven by lower share based incentive expenses as well as a decrease in various other operating expenses.
Moving now to taxes.
Our overall effective tax rate for the second quarter of 2020 was 29.1%.
Our annualized effective tax rate before discrete items remains generally consistent with the statutory rate of 21%.
Now moving to capital and available liquidity.
Radian Guaranty had p. Myers available assets of approximately $4.2 billion and our minimum required assets were approximately $3.2 billion as of the end of the second quarter of 2020.
The excess available assets over minimum required assets of $1 billion represents a 31% pmiers cushion.
We have also noted on slide 19, our P. Myers excess available resources on a consolidated basis of $2.4 billion, which if fully utilized represent 73% of our minimum required assets as of June Thirtyth 2020.
Based on our key Myers cushion.
At June Thirtyth 2020.
Radian Guaranty would have been able to absorb a default rate of approximately 25% in the second quarter nearly four times, our second quarter default rate of 6.5% and continue to remain in compliance with the P. Myers financial requirements.
And based on our total available resources at June Thirtyth, 2020, which includes our pmiers cushion as well as resources available at our holding company Radian guaranty would've been able to absorb a default rate of approximately 50%.
As of June Thirtyth 2020, we have reduced radian guaranty P. Myers minimum required asset requirements by $1.5 billion by distributing risk through both insurance linked to notes and third party reinsurance execution as noted on press release exhibit al.
As previously reported during the second quarter Radian Group also issued $525 million aggregate principal amount of senior notes due 2025, and we extended our $267.5 million unsecured revolving credit facility to January of 2022.
For Radian group as of June Thirtyth 2020, we maintained $1.1 billion of available liquidity.
Total liquidity, which includes the Companys $267.5 million credit facility was $1.4 billion as of June Thirtyth 2020.
It's also important to remind our listeners that most of the cash flows at the parent company are funded by a long established regulator approved expense interest and tax sharing agreements with its subsidiaries and not through dividends from subsidiaries.
This provides us with an enhanced level of certainty and predictability and parent company cash flows.
Despite the increased risks and uncertainties close by the co that 19 pandemic the quality of our mortgage insurance portfolio and the steps we have taken in recent years to enhance our financial strength and flexibility have positioned us well for and economic downturn and we believe will help us whether the macro economic stress is.
Ahead.
And while the strategic and systemic defenses in place will not provide complete immunity to the expected near term negative effects to our financial results. We believe that we're at a much better position to absorb the impact of economic stress than during the flight the global financial crisis and will emerge from this crisis strong and we.
We remain ready to fulfill our mission.
Ill now turn the call back over to Rick.
Thank you Frank before we take your questions I'd like to remind you the given the significant improvements made since the last financial crisis. We believe that we are well positioned to serve our role as a private mortgage insurer.
It is important noted our industry remains the only committed source of permitted private capital that has continued to consistently underwrite and support mortgage credit risk through the market cycles, including this time of economic disruption.
We continue to write significant high quality, new business today, supporting our customers and their borrowers and we expect to re threatened cycle by utilizing our strong risk management discipline to build economic value.
We have been preparing over the past few years to weather in economic downturn by improving our duct maturity profile utilizing the economic value to construct our portfolio proactively managing our customer relationships implementing greater risk space granularity into our pricing and increasing our use of risk distribution strategies to lower.
The risk profile and financial volatility of our mortgage insurance portfolios. These efforts combined with building, our pmiers cushion and Radian group liquidity have better positioned us to navigate this unprecedented environment.
Operator, we're ready to take questions.
Thank you we will now begin the question and answer session.
A question. Please press Star then one and you touched telephone if you wish to be removed. Nick you. Please pass upon side I'm asking.
Any speakers you may need to pick up the handset price by pressing the numbers.
Once again, if you have a question. Please press Star then one and you touched on Bob.
And our first question comes from Jack Misanthropic fighting.
Hi, good morning, everybody.
I guess to kick it off the first question the obvious one.
You guys look and about a half claim rate and I think the other.
Folks that have reported this quarter, but we're in a seven.
And I hear you want to be conservative there's lot of uncertainty. This is going to take years not months to work through.
But is there anything in your portfolio specifically.
That would have.
Caused that differential or certainly don't know what other people's models are telling them, but what do you think the differences in your assumption set versus others in the industry since they all kind of aligned around that 7% figure.
Yes. Thanks, Jack This is Rick I'll take that question and Derek and tried to jump.
And income as well the wish but Tom.
We obviously can't comment on the specifics related to the peers on how they drew their conclusions I think.
Theres no playbook on this scenario that we can necessarily draw from but I think there are significant differences from the previous financial crisis as I mentioned previously.
I believe the differences you're that we see is that just simply different management teams expressing different judgment related to the economic environment, which is still early very early in the cycle. We're very early in the stage and there is uncertainty the remains.
How this will play out we believe we've gone through thoughtful process to assess based on the market factors and really looking at.
The programs in place so along with just simply applying our judgment.
And so when you come to think about it on a comparative basis through the cycle of I think some of the analysts have commented on the differences across the portfolios being.
There being no differences you on a relative basis cross portfolio, but when we look at it we would expect really no meaningful difference of outcome ultimately from a claims.
Rate perspective.
As we go through the cycle, but remember we're in the first quarter of this and.
I think we'd go through thoughtful approach, we're going to continue to.
Monitoring what for trends.
No look for the trends of stabilize and gain greater certainty as to how the economic environment, it's going to develop.
I think specifically, we're going to be watching default trends, we did report our July trends.
We're going to watch the economy from an unemployment point of view and we're going to watch the housing market, specifically Roe of home prices. So.
I think it's important remember at this point.
We are using our best judgment as I think everyone is we don't expect any material differences as we go through the cycle across Cmax, because we all underwritten the same loans from the same originators. During the same period of time to legacy book of business, there's really no longer relevance.
And the other thing goes we've watched us we're putting reserves up based upon what we believe today and ultimately those claims are two years away before we actually start to pay acclaim two years plus or minus so I think we're we're comfortable where we are today can't really comment relative to peers.
But I do think Youre seeing judgment applied I think you're ultimately we're going to see.
Though.
We're not going to see meaningful differences between the participants was this plays out.
Okay, Great and then.
On the on the pricing side.
You know there's been talk in the industry.
Thats some increases the kind of rolled out.
There's a little bit a discussion around weather.
Those pricing changes kind of narrowed in or or or motivated.
To maybe a higher quality.
Mix.
Or whether it was more broad based across the board I'm curious is your perspective on pricing and then how do we think about.
Those pricing changes in the context of sort of the 44 in force yield or are we pricing business. The that's generally accretive to that that can sort of offset the other pressures or how do I will read our are you guys position on pricing today.
A jacket side, Eric so in terms of pricing, it's tough to compare a guest and absolute premium rate that's going to depend very much upon the credit mix I think what we had indicated is kind of across the industry and the black box engine. There was pricing increases we had indicated we saw that anywhere from 10.
50%.
We took the approach about pretty.
Broad base price increase with certain segment that with pain, we were more aggressive and increasing price, particularly in those areas, where we thought there might be.
More difficult performance relative to kind of historical so we kind of backed off in those segments I would say some of our competitors were.
I would say more targeted.
Perspective, and the way we approach pricing as we look at what our economic scenario is and then at that pricing to get to an appropriate risk adjusted return and we might find certain segments, depending upon where competitors are price to have higher economic value and what we've always indicated has.
We will set the pricing and kind of shift from a portfolio perspective. Accordingly, So I would say generally the price increases are there and kind of what you're seeing now in the competitive landscape I would say are different am I kind of tweaking pricing.
And to get the mix and the return that they're looking for across the kind of credit spectrum.
Okay. Thank you thanks, guys. Good luck.
Thank you thank you Jack.
Our filing question comes from please.
It's from KBW.
Hello, Good morning.
Rick you noted that comprise security or a big driver and you're going to keep a close eye on that just how should we think about how that sort of feed through to your.
To your expectations at home prices remained very strong.
Yes, it should we see maybe a change in the default to claim assumption for you were just trying to think about how that benefits flows through.
Yes, most hi, thank you for the question.
I think I think as you look at.
As you look at home prices you compare to the the great financial crisis Ray home prices in that scenario really led the crisis here, we have a stronger housing market. It's well stylists is healthy and I think thats really ultimately.
Material difference, obviously, we're watching unemployment, we're watching borrower behavior from a default point of view and service or performance, but when you think about one of the great differences today as we have a very strong housing market and rebounded very quickly kind of coming into the code and recovered. So we're going to watch it. It is an important fan.
After I don't think I'm prepared to say, whether it's going to.
Change how it will affect our view of the future, but today what are the things that we are we feel good about we are watching carefully as kind of how home prices are are.
Yes.
Developing across the market I mean, when you look at.
What's occurring is is there is we knew coming into this market. There was a great some supply shortage in demand.
Access and that's really serve to be very balanced seamless environment.
We have the combination low rates low supply in high demand and so we're seeing very qualified borrowers come through buy homes I think in our July numbers, we had over 70% be purchases versus through the second quarter I think it was 50 456.
Kind of in the mid Fiftys. So we're seeing a purchase market kind of develop even as refinances based slowdown we feel that purchase market and that's going to provide strong support to houses home prices. So.
Don't have specifics to tell you, but I think it's an important factor and we feel good about how it's developing an evolving today.
Okay that makes sense, thanks, and the cure rate that you had some July would you characterize that as being better than expected or inline with expectations or how would you characterize them.
I would characterize the trends, we're seeing are coming in better than expected. So I think what we saw.
In July a little faster than expected that.
Third a new default ratio I think it was 126% in July so I think thats on stronger than what I would have been expecting at this point.
Okay, Great I should let me just sneak in one more the mark to market LTV on the loans that are in forbearance do you happen to have that number.
I don't have it specifically broken out by those that are in for barriers, but I would say kind of broadly and we talked about this certainly from our home equity perspective.
Certainly thats going to be an important component in terms and the default inventory. So when you kind of look in the portfolio overall and I don't think it's going to be necessarily dramatically different.
We're seeing significant portion plus 80% that have 10% or more equity, but I don't have it at hand in terms of broken out from a.
Those loans that are actually and forbearance.
Okay, great. Thanks very much.
Thank you Bose.
Our next question comes from Douglas Harter from Credit Suisse.
Backwards if your line of media please on the south.
Your next question comes from here.
From Bank of America.
Hi, Good morning, and thank you for taking my question, but I just wanted to go boarded jacks question on default to claim rate assumptions, but I can appreciate the colonial process, but I was wondering if you could maybe just the left a little bit more about just the public to the benefit it become into both programs provide did that assumption.
I guess been pretty unusual environment, you have unemployment up a lot. The housing market have held up pretty nicely. So just trying to understand what would it have looked like if just that if you just have the economy as is without that government support.
I think Doug.
Thank you for the question I think.
Eric and I can tag team this what I think it's.
When you think about the scenario were in units if you think about within without.
Forbearance programs, you probably have different answers right into two ways, one without forbearance programs, we probably wouldnt have the number of defaults that we have today right. Because there are a number of people that are in forbearance programs.
Though kind of probably are more on the margin or or did it more from a hedge.
If we.
So when you think about that factor.
It would it just plays out differently. So I think from a from a scenario perspective, I would just I would think of it.
In the context that we are today, we do factor in the existence of forbearance programs. We're monitoring the trends very carefully to watch those Derek just mentioned thinking through how how cures play how new defaults Center, we were pleased.
In July not only the c. the cure rate, but also to see the number of new defaults right, because ultimately new defaults or would drive future claims so.
We are monitoring it very carefully but in other analysis, we do take into account Echo forbearance programs and other support we see in the market from an economic point of view the Cures Act.
Other other.
Other opportunities for supported in home borrowers through this temporary moment of hardship keep them in their homes and so but we think we're early in the cycle, we need to continue to evaluated and watch the trends and watch kind of how unemployment develops watch how how home prices developed.
As I mentioned earlier, but we do believe.
Factoring in Forbearances gives you a different answer from a default to claim rate, but also if you didnt have forbearance programs, we probably have lesser default. So I hope that's helpful.
Eric maybe.
Kevin and I think you separate so couple of months support I think about that a little more on that short term and thats, probably a driver the rate of new defaults are coming in the portfolio. When you think of that default to claim rate and the propensity of those in default ultimately rolled the claim just keep in mind that it takes years.
And I'll, usually at least one day two years report results in a claim so ultimately the propensity enrolled at claim is probably going to be driven last by kind of short term government support and more so the fundamentals of the autonomy and in particular in the fundamentals of the housing market. So as you kind of see to the extent that you continue which has.
In an important factor in housing market continue to home price appreciation continued positive supply demand kind of mechanics in the market that will help lower that default to claim ratio because it allows borrowers to gal from under.
We have.
Acquisition option in terms of the property. So I would look at at more from that perspective kind of short term long term.
On this had no thats helpful. Thank you and then if I could switch.
Did the services segment just for a minute I wanted to ask about the services segment and just in terms of the performance than the second quarter two minutes deal expectation and then I guess just more generally can you remind that some of the drivers for that business. Because you had a pretty strong housing market right in Duke and yet I think the segment.
It was not profitable and I was just wondering what kind of housing backdrop of what needs to happen for that segment the stop continuity.
From a property book, yes. Thank you. Thank you for the question I think either look we are as I've mentioned before these are businesses that are in kind of early stage of growth, especially as we.
Kind of exited the the Clayton business earlier, this year and we've repositioned really across us real estate segment, so where we've seen significant growth in and kind of momentum.
From a from a revenue perspective, but also from a client pipeline relates to our title business.
And that how that that's being really fueled by truly are our end by relationships and our relevance and service delivery from a title perspective, the other businesses that there's three other pieces of the puzzle which is the.
Asset management business, which was our single family residential due diligence business, which.
Kind of hit the pause button, a little bit because of the cobot environment. So we'll see that come back and we have a strong market position our valuation business.
The.
Appraisal businesses also kind of the has a little bit of a slowdown just simply because of more automated appraisals being offered by the Gses are our data driven so that I think is you know well position and then I would say.
Kind of our our two real estate technologies kind of investments. So when you look at our real estate business, we see a trajectory of growth in terms of growing revenues in and contributing profitability, but I do think as you kind of step back and looked at the business in the assets we've got.
Titled probably has.
The.
The nearest term contribution from a profitability point of view given the pipeline of clients the other businesses.
There have been impacted a little bit by cobot, but we feel like we're well positioned to grow the revenues across our valuation at our and our asset management businesses. While at the same time. We're also heavily investing in those businesses around data analytics and technology and so we're either.
You may see volatility in some of the ultimate expense numbers that business, but our objective is to kind of growth through this cycle leverage our strong relationships in the market and build growth across our title valuation and asset management business and ultimately rollout our our technology.
More broadly across our real estate business, So I think.
To summarize some of those up.
I would look at it us where you're going to see the title business continue to develop and grow evaluation business will recover us as we kind of come out of this cobot 19.
Environment, and I think our supplier asset management business Oreo management business are well positioned for the future as well, so but along the way. The here, we're going to continue to invest in our platforms from a data and analytics and technology and and that's going to that will have an impact on expenses, but I think in the long run as.
I've said before we're going to see see value accrue in these businesses really ahead of.
Financial contribution that downturn and supply and I think just one other comment I'll make about because I think it's relevant when you look at what's going on in the Fintech and prop tech space relative to the businesses that were in when we see things like Ellie Mae of optimal blue and we see transactions in the marketplace I think we I'd like to collection of assets.
Yes, we have I'd like to collection of data and analytics and technology. We have I think we're uniquely position and we're very focused on building long term value.
And that May have some volatility in the short term or.
Earnings contribution.
In this thank you thanks, taking my questions.
Thank you.
Our next question comes from Douglas Harter from Credit Suisse.
Thanks could you talk about the decision to raise debt during the quarter event.
[music].
The the figures you referenced in terms of your ability to withstand significantly higher default rates than than your accurately.
Sure Douglass as Frank.
For the question the no the decision to to raise debt was really predicated upon just the uncertainty in the landscape and when you look at when we raised it at particular.
There were certainly.
A significant amount of uncertainty and lack of clarity on what.
Government programs would be in place et cetera. So we just wanted to make sure as we've done historically that we just.
Maintained strength and flexibility in our capital structure, we've done that historically and we thought it was prudent.
To have the additional resources.
Just in case.
And and so it was primarily from a defensive standpoint.
That we.
If we raised.
New debt.
And then I would say also from a from an offensive standpoint. We also wanted to make sure that we were well positioned to take advantage of any potential disruption.
From any of our competitors at any decisions that they may make to pull back for any type.
Type of capital preservation reasons. So it was good for us both defensively and also potentially off sensibly as well.
Great I appreciate aircraft.
And we have no further questions.
Okay, well I will the thank everyone. Appreciate the questions I. Thank everybody for joining the call today and for your your participation and confidence in radio I want to thank the radian team for really the tremendous suffered that has been displayed.
During the scope and 19 environment as we all work remotely and continue to serve our customers at a very high level. So but again. Thank you look forward to talking to all of you soon and I have a good they stay safe and stay well take care.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.