Q1 2022 Enact Holdings Inc Earnings Call
Hello, and welcome to <unk> first quarter earnings call. Please be advised that today's conference is being recorded I would now.
I like to hand, the conference over to your first speaker today, Dan you call Vice President of Investor Relations you may begin.
Welcome to our first quarter earnings call joining me today are Rohit Gupta.
President and Chief Executive Officer, and Dean Mitchell, Chief Financial Officer and Treasurer.
Rohit will provide an overview of our business.
Our performance and progress against our strategy.
Dean will then discuss the details of our first quarter results before turning the call back to Rohit for some closing remarks.
After prepared remarks, we will take your questions.
The earnings materials, we issued after market close yesterday contains <unk> financial results for the first quarter of 2022, and a comprehensive set of financial and operational metrics are available on the Bachelor Relations section of the company's website at Www Dot I R. Scott.
Enact MRI dotcom.
Under the section of our quarterly results.
Today's call is being recorded and will include the use of forward looking statements. These statements are based on current assumptions estimates expectations and projections as of today's date that are subject to risks and uncertainties, which may cause actual results to materially differ.
We undertake no obligation to update or revise any such statements as a result of new information.
For a discussion of these risks and uncertainties. Please review the cautionary language regarding forward looking statements in today's press release as well as in our filings with the SEC, which are available on our website.
Also please keep in mind the earnings materials and management's prepared remarks today will include certain non-GAAP measures reconciliations of these measures to the most relevant GAAP metrics can be found in the press release, our earnings presentation, and our upcoming SEC filing on our website.
That I will turn the call over to Rohit.
Thank you Daniel Good morning, everyone and welcome to our first quarter earnings call.
The first quarter marked an excellent start to 2022 fortinet.
<unk> of our portfolio, 10% year over year initiated a quarterly dividend program and generated strong operating and financial results, including adjusted operating income of $165 million or $1 <unk> per share and return on equity of 16, 2%.
Importantly, we achieved these results while also maintaining our commitment to balance sheet strength and strong risk management.
We continued to execute on our strategy in a dynamic market environment.
We strengthened and deepened relationships with customers provides.
Providing them with innovative solutions and prudently pursued opportunities to win new business.
We also continued to prioritize a strong balance sheet that provides us financial flexibility to support our existing policyholders invest for growth and return capital to shareholders.
We have said that one of the key benefits of our IPO would be the ability to strengthen and expand our client relationships as a result of our enhanced financial strength and independence and last quarter. We noted that we had reactivated our relationship with a key customer.
We have seen this momentum continue in the first quarter as we have either deepened or activated relationships with a substantial number of targeted customers.
This progress contributed to our strong insurance enforced performance in the fourth quarter of 2022 up.
10% from a year ago to record levels as we continue to write profitable new business.
We've told you that we are committed to pursuing high quality business as we target the right price for the right risk with new business pricing, yielding low to mid teen returns in 2022.
During the quarter, we saw pricing on new insurance written continue to stabilize with fewer and lower magnitude of pricing moves in the market.
The high credit quality of our portfolio was again evident in the quarter.
The weighted average FICO score of our portfolio at quarter end was 742, our average loan to value ratio was 93% and our layered risk concentration remained low at about one 6% or.
A level that we believe is sustainable.
The combination of effective risk management, our focus loss mitigation efforts and the continued economic recovery resulted in a $50 million reserve release, which contributed to our loss ratio of negative 4%.
Cure activity was again robust and outpaced new delinquencies, resulting in a continued decline in total delinquencies.
We did see a modest uptake in new delinquencies sequentially during the quarter something that is to be expected as our newer large books age and track to normal lost patents.
These newer books continue to perform in line with our expectations at origination.
During the quarter, we successfully executed two additional excess of loss reinsurance transactions to strengthen our capital position and acquired loss protection on our newer books.
Execution of these transactions demonstrates our ability to source cost effective P Myers capital and loss protection in a period of capital markets volatility and widening spreads.
As of the end of the quarter, 93% of our risk in force was covered by credit risk transfers.
Notably we ended the quarter with the second highest P. Myers buffer to publish standards in our history at 176% or $2 $3 billion of sufficiency.
The strength of our business and balance sheet positioned us to achieve a significant milestone in our capital allocation strategy.
The announcement that our board of directors approved the initiation of a dividend program, reflecting our intent to pay a quarterly cash dividend.
The first of these will be paid in the second quarter of 2022 at <unk> 14 per share.
This is a significant step that reflects our confidence and focus on meeting our commitment to create value for shareholders and we plan on returning additional capital by year end.
Dean will provide more details about the quarterly dividend and speak to our capital allocation framework in a moment.
Before I turn it over to Dean I would like to discuss the current environment and how we are thinking about the business in 2022.
We've all seen the headlines market dynamics are undoubtedly complex, but remains supportive overall for our business.
Factors such as changes in interest rate policy, which is leading to higher mortgage rates and home price depreciation present challenges to affordability. However, the consumer remains resilient with higher savings than pre pandemic levels.
The labor market is very strong housing supply remains at historical lows and the ongoing post pandemic shift towards homeownership, all underpinned strong home buying demand.
We believe this demand will continue to drive a robust purchase originations market in the near term, which drives a healthy private mortgage insurance market.
Further as a consequence of higher interest rates, we expect the persistency of our insurance in force portfolio to improve as refinancing activity declines.
Importantly, both <unk> and the industry have evolved substantially in the last decade.
The implementation of the qualified mortgage definition, which drives higher credit and manufacturing quality the move to granular risk based pricing, which produces greater uniformity and risk adjusted returns executed at a faster pace.
And our resilient credit risk transfer program at cost effective levels, all drive an improved and stable framework for our business.
These enhancements combined with our strong balance sheet and 93% of forward book being covered by credit risk transfer programs provide us with significant financial strength and flexibility.
In addition, the investments we have made in innovation and Digitization to enable auto decisioning and underwriting and pricing granularity drive superior risk management and loss mitigation and we have significantly strengthened the quality of our loan portfolio.
Today, we are better positioned than ever to leverage our deep experience to adapt manage and growing our market that we believe continues to provide significant opportunities for prudent growth within our risk adjusted return appetite.
We will monitor and navigate these dynamics everyday as we have been as we continue to execute on our strategy.
We are encouraged by our performance to date and confident in our ability to execute going forward.
I'll now turn the call over to Dean to discuss our first quarter performance in more detail.
Thanks, Rob Good morning, everyone. We delivered very strong financial results in the first quarter of 2022.
GAAP net income was $165 million or $1, one per diluted share as compared to <unk> 77 per diluted share. The same period last year and 94 per diluted share in the fourth quarter of 2021.
Adjusted operating income was also a $165 million or $1 one per diluted share in the quarter as compared to <unk> 77 per diluted share in the same period last year and 94 cents per diluted share in the fourth quarter of 2021.
Turning to key revenue drivers new insurance written was $19 billion for the quarter in line with our expectations and down sequentially from 21 billion, primarily driven by seasonally lower purchase originations.
New insurance written for purchase transactions made up 92% of our total <unk> for the quarter up from 90% last quarter.
In addition monthly payment policies remained at 91% of our quarterly new insurance written consistent with last quarter.
Insurance in force reached a new record of 232 billion up 10% from the first quarter, a year ago and up 2% sequentially.
The year over year increase was primarily driven by strong new insurance written and increased persistency.
Risk in force at quarter end was $58 3 billion up from $56 9 billion at year end and $52 9 billion in the first quarter of 2021, primarily driven by our growing insurance portfolio.
With increasing interest rates, we saw an increase in persistency during the first quarter.
Persistency for the period improved to 76% up from 69% last quarter and 56% in the first quarter of 2021.
In addition to rising mortgage rates the increase in persistency was driven by a continued decline in the percentage of our in force policies with mortgage rates above current market rates.
Revenues for the quarter were $270 million compared to $273 million last quarter and $289 million in the same period last year.
Net premiums earned were $234 million down 7% year over year and down 1% sequentially driven by the lapse of older higher priced policies as compared to our new insurance written and lower single premium cancellations as persistency increased.
In addition, the decrease in net premiums earned year over year was also driven by higher seeded premiums in the current quarter from the expanded use of our credit risk transfer program.
These factors were partially offset by growth of our insurance in force.
Our base premium rate of $42 three basis points was down 1.1 basis points sequentially and four basis points year over year, driven primarily by the lapse of older higher priced policies as compared to our new insurance written.
As we've discussed in the past there are a number of macroeconomic and consumer driven factors that drive movements in premium rates, which can be volatile on a quarterly basis.
Given our view of the current market and related assumptions, including our assumption on persistency. Our 2022 full year estimate is an approximately four basis point decline in premium rate or three basis points over the remainder of 2022.
Transitioning to net earned premium rate. In addition to the lapse of older higher priced policies as compared to our new insurance written our net earned premium rate is also impacted by lower single premium cancellations and higher ceded premiums from a credit risk transfer program.
Investment income in the first quarter was $35 million flat, both sequentially and versus a year ago, primarily as our larger portfolio was offset by lower bond calls during the quarter given the rising interest rate environment.
Turning to credit losses in the quarter were a negative $10 million as compared to $6 million last quarter and $55 million in the first quarter of 2021.
Our loss ratio for the quarter was negative 4% as compared to 3% last quarter and 22% in the first quarter of 2021.
The benefit in losses and loss ratio in the quarter was primarily driven by $50 million of reserve release, primarily on 2020, COVID-19 related delinquencies, which have cured at levels above our prior expectations.
New delinquencies in the quarter were approximately 8700, an increase of approximately 400 sequentially and a decrease of approximately 3500 from year ago levels.
The sequential increase in new delinquencies was primarily driven by our large new books that are aging and going through their normal loss development pattern and performing in line with our expectations.
Our new delinquency rate for the quarter was 0.9% consistent with pre pandemic levels of development and indicative of ongoing recovery.
Our claim rate estimate on new delinquencies for the quarter was approximately 8% consistent with the claim rate for new delinquencies throughout 2021.
Our first quarter total delinquencies of approximately 22600 and the associated delinquency rate of two 4% represent ongoing improvement in both measures driven by the continuation of cures outpacing new delinquencies.
Cures in the quarter of approximately 10800 decreased modestly as compared to the prior quarter and represented a cure ratio of 124%.
I'll now turn to our ever to date care performance on COVID-19, new delinquencies or those new delinquencies since April of 2020.
As depicted on page 12 of our earnings presentation to date, approximately 93% of the 2020 Covid delinquencies have now cure.
Curious on Covid related delinquencies have been aided by favorable resolutions of forbearance programs home price appreciation in our loss mitigation efforts.
As a result cumulative cure rates have continued to increase through time and are the primary driver of the reserve release actions taken in the current quarter.
The embedded equity position of our delinquent policies remains substantial with approximately 97% of our delinquencies as of the end of the quarter, having an estimated 10% or more mark to market equity using an index based house price assessments.
As I've noted in the past this can serve as a potential mitigate both to the frequency of claim.
As well as the potential future loss per delinquencies that ultimately progress to claim and.
And we saw evidence of this trend during the quarter.
Turning to expenses operating expenses for the quarter were $57 million and the expense ratio was 24% as compared to $59 million and 25% respectively in the fourth quarter of 2021.
As a reminder, operating expenses in the fourth quarter of 2021 included $1 million of strategic transaction preparation costs and restructuring costs.
Moving to capital and liquidity, our Pmiers sufficiency increase sequentially in the first quarter to 176% or approximately $2 3 billion above the published P Myers requirements compared to a 165% or $2 billion in the fourth quarter of 2021.
At quarter end, we had approximately $1 6 billion of P. Myers capital credit and approximately $1 8 billion of loss coverage provided by our credit risk transfer program.
As Rohit referenced this quarter, we executed two reinsurance transactions as part of our credit risk transfer programs the.
The first reinsurance transactions secured excess of loss coverage from a panel of highly rated reinsurers covering our new insurance written throughout 2022.
In addition, we executed another $325 million excess of loss reinsurance transaction on the second half of 2021 risk in force leveraging the traditional reinsurance market.
We believe this transaction serves as another proof point to the value of diversified capital sources, which allowed us to secure incremental coverage on attractive terms despite volatility in other parts of the market.
Since its inception in 2015, we have executed a total of $4 4 billion of loss protection through our credit risk transfer program.
Through both the traditional reinsurance market and capital markets.
As previously announced our board of directors approved the initiation of a quarterly dividend program the.
The initial quarterly dividend for the second quarter of 2022 will be 14 per share payable in may.
Future dividend payments will be subject to board of director approval and targeted to be paid in the third month of each subsequent quarter.
During April our primary mortgage insurance operating company enact mortgage insurance Corporation, or Amoco distributed $242 million from its paid in capital to our holding company enact Holdings Inc.
We intend to use these proceeds in additional distributions in part to fund the quarterly dividends as well as to bolster our financial flexibility at our holding company and return additional capital to shareholders.
We believe the initiation of a quarterly dividend program reflects meaningful progress towards our 2022 capital management plans.
In addition to the quarterly dividend, we plan to return additional capital to shareholders later in the year.
We will continue to evaluate the most appropriate amount of total capital to return to shareholders over the course of 2022.
Our ultimate view will be shaped by our capital prioritization framework, which prioritizes supporting our existing policyholders growing our mortgage insurance business funding attractive new business opportunities and returning capital to shareholders.
Our total return of capital will also be based on our view of the prevailing in perspective macroeconomic conditions, the regulatory landscape and business performance.
So to recap we generated very strong performance in a dynamic macroeconomic environment.
As we continue to execute through the remainder of the year, we will maintain a disciplined approach to capital and liquidity, while investing in our growth and returning capital to shareholders.
With that I'll turn it back to Robert.
Thanks, Deane all in all a very strong start to the year.
I'd like to thank each and every member of that team for their contributions to our performance.
Our company is well positioned for 2022 and beyond as we continue to build on the momentum we have generated.
With record insurance in force and a strong balance sheet, we are confident in our business and in our ability to successfully navigate this dynamic market.
Our role in helping families achieve their dreams of homeownership has become even more important in today's market environment.
In the first quarter, we made it possible for 55000 homebuyers to qualify for a mortgage who otherwise might not have.
While also working hard to keep others in their homes through loan modifications.
We are very excited by and proud of the role we play in this market and remain committed to working with Capitol Hill. The administration, great groups and consumer advocates to drive solutions that increase the accessibility affordability and sustainability of homeownership.
We are now ready to take your questions operator.
Yes.
As a reminder to ask a question you will need to press star one on your telephone.
To withdraw your question Jess press the pound key.
Please.
We compile the Q&A roster.
Our first question comes from the line of Rick Shane from Jpmorgan. Your line is open.
Good morning, guys. Thanks for taking my questions.
Look.
As we see the market evolving.
In terms of greater competition for originators as market as volumes fall.
Curious if youre seeing any distortions either in terms of pushback on pricing or more importantly.
Terms of.
More aggressive loan structures.
Good morning, Greg.
Thanks for the question, so I would say having seen some competition in the market in the origination market space in the last four months as interest rates have gone up by almost 200 basis points, we have not seen an impact of that coming over to them I industry.
In terms of asking for more pricing competition on the M I price or in terms of.
Credit policy or loan structuring. So at this point of time, we believe that those dynamics.
New to remain similar to what we had seen in the past.
Got it and when you think of sort of analogs historically.
Where do you think we are what is what is the most comparable timeframe to think about in terms of the competitive landscape and the.
The evolving environment.
And Rick when you say competitive landscape, you are referring to my industry or origination abroad.
Similar to your first question.
Actually probably both.
Bifurcated in the way that you're describing but.
I think it's important to consider both.
Yes so.
On the origination market, it's probably not our place to comment on what the competition dynamics are and what can it be compatible to I would say in the MA marketplace as I said in my prepared remarks.
Continued to see stabilization in <unk>.
Pricing, we saw fewer and lower magnitude of pricing moves in the market in the first quarter.
So that gives us confidence that we are approaching that point of stabilization and in terms of finding a comparable point historically I would just say the macro conditions are so different than many of the times, we have gone through in the last.
Two decades in the industry that it's difficult to compare the current dynamics through any of the prior economic or kind of industry.
Dynamics time.
Robert I appreciate the last comment I agree with you I think we're grasping at straws in terms of understanding the environment as well as part of its part of what drives the questions, but thank you very much.
Yeah.
Thank you Nick.
Our next question comes from the line of Doug harder from Credit Suisse. Your line is open.
Understanding that as you just said the environment is different.
But how do you think about <unk>.
Persistency.
Particular.
Potential for.
For for policyholders to cancel.
There are policy given the strong home price appreciation that we've seen.
Yes, Rick.
Excuse me Doug. Thanks for the question I appreciate that I'll start off talking about persistency in general I'll turn it over to Rohit to talk about Barra.
Borrower behavior as it relates to borrow initiated cancels so just to recap persistency was up to.
76% up seven points sequentially, and 20 points year over year, driven primarily by higher interest rates.
Given the loan origination process in time from borrower qualification of loan closing theres still about a month or two lag between persistency results and really current market conditions. So our Q1 persistency of 76% really doesn't include the recent run up of mortgage rates that took place.
February and March.
As a result of that I think we'd expect future persistency to continue to increase above Q1 levels as we as we make our way out of the quarter into the remainder of the year.
Rohit I'll turn it over to you for borrower, but sure. Thanks, Pete So Doug I would just add to Bens question, one extra point on persistency and then borrowers I think on persistency bigger picture, we expect persistency to be a tailwind in our ability to grow our portfolio as about $232 billion of insurance enforced to its longer.
And it gives us an ability to also hedge against any pressure on market originations just from higher interest rates and higher home prices now.
Now on borrower initiated cancelled we believe that at least driven by two factors in there might be more forced one for border initiated canceled switches essentially borrower goes out gets an appraisal submits that appraisal to their service or to request a cancellation under hopper.
<unk> have a seasoning requirement, which is a combination of number of years and current loan to value requirements.
That applies to borrowers to cancel them based on updated appraisal and updated home price set.
Thing is it requires an option on borrower's behalf to spend money get an appraisal and submitted to the <unk> to see if they qualify it so they have to spend anywhere from 200 to $400 on an appraisal take that initiative and then not have the certainty of that cancellation. So that's how we think about the considerations in terms of actual.
Trends of borrower cancellations, we have seen some volatility in that number of recently and in the past even going back two and a half years ago. It's a very small portion of our labs and we are keeping an eye on it.
So nothing meaningful to report at this point of time outside of that comment.
Great I guess, what is the seasoning requirements.
Just so.
So I'm working from.
Yes, so Doug <unk>.
Plus these new requirement is minimum of two years.
<unk> if the loan is season and im talking about GSE loans, so that would apply to a significant portion of our portfolio.
So two years minimum after two years, but before five years, the updated current loan to value needs to be 75% for cancellation and then beyond five years that drops to 80% current loan to value based on operating strategy.
And given that just to kind of connect the dots here. If you think about our insurance enforced concentration.
The last two vintages, 2020, one make up 66% to four bulk you add 2020 due to it that's another eight points. So that portion of our book kind of doesn't meet that seasoning requirement or barely meets the seasoning requirements. So that delta you.
How you think about in the money risk on borrower initiated cancels.
Okay.
Alright, thank you.
Yep. Thank you.
Our next question comes from the line of Bose George from <unk>. Your line is open.
Hey, guys good morning.
First just one on the dividend when you when you look out into kind of 2023 are we likely to see the dividend more in the form of just a regular dividend or.
Is this the plan to have kind of a base dividend and then.
The special each year.
Yes, it does.
Thanks for the question I think as you look forward.
Out into 2023, you should expect.
Our return of capital plan to have multiple components.
The quarterly dividend.
Announced.
Earlier last later last week as well as some other form of return of capital whether that be a special dividend or share buyback or a combination of the two.
Okay, great. Thanks, and then just switching to underwriting and just given the continued very strong home price appreciation are you doing anything differently in terms of underwriting.
The more the newer loans or our loss expectations are changing just given this is this is strong HPA that's continuing.
Yes. So thanks for the question I would say we are doing the same things that we do normally in terms of monitoring the market and adjusting our pricing and credit policy actions in alignment with our view.
If the market not only at a national level, but also at a geographic level and as a reminder, one of the benefits of our approach with risk based pricing is that we are able to make changes on a much more agile basis as we see market conditions evolve and as a reminder, in 2020 April and May, but then <unk> you made three price.
<unk> changes increasing over price by 20% as we saw the pandemic.
Kind of start to expand in the country and shut down portions of the country. So I would say that's how we think about our agility given the fact that we operate in are opaque risk based pricing environment are not going to specifically comment on pricing actions, but I would say from an underwriting perspective, both in mortgage insurance industry in broadly in mortgage finance.
Industry <unk>.
I'm a qualified mortgage definition perspective, as well as regulatory rules. The boundaries are much much better than they used to be pre global financial crisis. So we have seen credit quality manufacturing quality you still stay at very good levels and as you saw from our risk metrics. We also continue to see strong portfolio.
Our quality from whether you look at the FICO score, whether youre looking at debt to income ratio.
And the metric we published our earnings presentation is also our layered risks.
Which continues to be at one 6% for total.
Our risk in force, which is a level, we believe can be sustained and on new insurance written basis that layered.
Layered risk metric was actually point to 8%, so even lower than our <unk>.
Aggregate risk enforce metric so that gives us confidence that we are putting on the write books with the macro view in mind.
Okay, great. Thanks.
Okay.
Thank you.
Our next question will come from the line of.
Geoffrey Dunn from Dowling and partners you may begin.
Thank you good morning.
Just a couple I guess number of questions to start first.
Is there a possible consideration for another dividend up from the Opco. This year given your current expectations for how the results can play out.
Yes, I think thats.
I think that would be part of our capital plan for 2022.
Some additional.
Potential distribution or dividend, but just proceeds coming from the operating company to the holding company.
Okay.
And then.
I've seen some actuarial suggestions out there with respect to <unk>.
Were cancellation rates could go or persistency.
And.
I'm curious if you think I think I'd have to go all the way back to 2000, if you exclude the great recession years to see persistency solidly above 80%, given where we're coming off of rates and the size of the books put onto those rates.
<unk>.
Does your analysis suggest that we could actually see persistency improve something more like the mid eighties versus kind of that maybe historical norm of 78% to 80%.
It's a little harder to predict that Jeff for the reasons. You. Just described we have the combination of.
Large newer books written at historically low interest rates, coupled with a rising interest rate environment, both of which are <unk>.
Reasonably.
New trends.
Two.
To the industry I would say just looking at Q1 results of 76% persistency and not having the full weight of.
Interest rates from from.
From March and from February and March embedded in them.
We could see certainly progression back to the long run normal of 80.
It's fair to think that that can go above 80% long run historical persistency rate.
Okay, just Jeff one perspective to add to that I think the one difference would also be I agree with Dean's comments, the embedded equity in homes as well.
And people.
Against their mortgages is another thing that is different with that much embedded equity do you see people paying off loans more.
We haven't seen that trend in the past, but have seen that in the last two years that consumer savings are up significantly. We're pre pandemic time period. The numbers. We have seen is closer to $5 billion of total consumer savings being higher than pre pandemic times and you add home equity do that does that create some level of prepayments, but our gen.
<unk> Riva Deane that from what we see in Q1 in the interest rate trend in Q2, we can see these numbers go higher.
Okay, and then last a big picture question on credit.
When you think about the ultimate drivers of <unk>.
Ultimate credit performance.
What is more important unemployment or home price appreciation and I'm trying to think of this in terms of where we are today with the buildup of equity relative to concerns about a possible recessionary pressure what is the bigger factor in the loss models.
Yes, Jeff I would say the way you asked the question I think you're implying that if we were to think about not delinquencies, but eventual claims and losses.
Right, Yeah, just credit call it credit at the end of the day, the ultimate economic credit loss, what is a more important factor.
So I would say from what we have seen in the recent cycle. If you just extrapolate that unemployment went up we saw a significant increase in delinquencies and we have been reserving against those delinquencies, but given the home price appreciation that Dean mentioned in his prepared remarks that 97% of our delinquencies have at least 10% equity in front of them.
That has been a good mitigate for both frequency and severity.
So I would say if you were looking at delinquency development unemployment is more important but if we're thinking about our mitigation to eventual claim and eventual loss to our book.
Difficult rise in home prices.
<unk> is a meaningful michigan to eventual loss now.
Let's ask our chief risk officer, Mike dosing to see if he has any additional perspective to add.
Thanks, Rohit I would concur with those remarks home price depreciation is definitely viewed in our <unk>.
Modeling considerations.
Michigan.
I think we've also seen in this environment are much less equity extraction.
A second liens, so we believe that that.
Michigan is stable through time.
So we do believe that that is important way to think about ultimate credit losses home price depreciation will have a benefit to that.
Okay. Thank you.
Thanks, Jeff.
Our next question will come from the line of Mihir Bhatia from Bank of America Your line.
Let me open.
Good morning, Thank you for taking my questions.
I guess maybe.
To start just I wanted to make sure I understood just in terms of what you've seen recently, maybe either in IW applications whatever in April .
Any impact from higher rates on the demand for both <unk> mortgage originations like I understand.
On the refi side and things of that but on the golf ball chance mortgage origination has there been any impact from the higher rates that you've seen yet.
Yes, very good question and thanks for that question I would say when you look at our Q1 results and the general indication of where Q1 origination market is trending based on current estimates you would see Q1 as a strong market both on the origination front as well as on the mortgage insurance side.
And that's kind of driven by a purchase market going down by about 12% purchase originations in aggregate in refi market, obviously going down much more than that.
Dod quarter was at least from our perspective more aligned with the three 8% 30 year mortgage fixed rate as we think about early development in second quarter interest rates have now risen in the last four weeks closer to five 4%. So we are keeping an eye on our early indicators and I would say these are just early in.
<unk> does not in any hard numbers, but if you look at the NBA purchase applications such as application for MBA right now on a four week moving average of down 6% from a month ago.
Refinance applications are down way more than that so it's too early to say, where the origination trends go long term. Our perspective is that as we think about our persistency and our business model that has a strong Michigan a strong hedge against any pressure on mortgage originations. So when we're thinking about our top line growth in our.
Insurance in force growth, we look at a combination of how interest rates.
We are trending in the market and as a result of that does our existing insurance in force trend at a better level in terms of stickiness and then obviously the subsequent impact on new originations, but I would say too early to.
Given indication on how that.
Stakes in the market in terms of higher interest rates impacting consumer and I would repeat my comments that we do see this cycle in this economic environment being different that while we see impact of higher interest rates and higher home price appreciation on consumer affordability.
We see that offset by higher consumer savings are very strong labor market very low housing inventory as being kind of an offset in terms of that balance between supply and demand.
No that's fair thanks.
And then just wanted to confirm on the expense.
Your guidance for the full year was around $240 million, obviously, you're up $57 million a little bit light on that.
Any update to that or should we still think of 240 million for the full year.
Yes, I'm here thanks for the question.
Our cost are not linear throughout the year and tend to increase.
Later quarters as a result of drivers such as.
Performance based incentive compensation and others.
In addition to that I'd just call out that we're in.
Not complete in our journey of standing up certain public company activities.
And while we are well on our way, we still have a little bit more room to go. So I think the $2 40 guidance that we provided last quarter remains intact. We will obviously continue to evaluate that through time, but.
I think thats still a good number.
Thank you and then my last question just wanted to ask about go back to the capital return our discussion a little bit I mean, it feels like the discussion has been quite focus around dividends and I understand like I know you just launched the quarterly dividend, but like in terms of the incremental capital redone that you've talked about within the dividend announcement on the <unk>.
Today's announcement is there any scope for a buyback could be contemplated that I mean your shares are trading below book value.
<unk>.
I mean, I understand consideration around liquidity, but is there a way for you to work with.
Baron to keep the stake steady as your buyback.
Rapidly or anything is there I guess I'm just trying to understand is there what is the scope for a buyback.
All future capital return plan and how are you thinking about that versus just whether it's a special dividend or Ohio quarterly dividend just trying to understand that.
Thinking through.
Thank you for your question. So absolutely we are very happy with the results. We have produced in terms of returning capital to shareholders. At this point of time with our $1 23 dividend in December of last year, and then initiating a quarterly dividend program with the first dividend we paid out in May of <unk> 14 per share and as.
Dean said in his prepared remarks that we plan to return additional capital before year end and we are comfortable with our original expectations that we provided in the market. So that would mean quarterly dividend and a special return of capital combined to be in line with what we have shared before in terms of your question about share buybacks.
<unk> something that we're considering so.
So we would go through kind of traditional finance 101 analysis in terms of where our shares are trading how does that compare to our view of intrinsic value of our business and then our unique situation also taking into account our total float and what do we need to think about on that front before we decide what is the right.
Form of capital return between special dividends or share buybacks or a combination of two so that's definitely something that we are taking into account and discussing with our board as well as with our majority shareholder Genworth financial.
Thank you.
Thank you.
Our next question will come from Ryan Gilbert from <unk>. Your line is open.
Yes.
Hi, Thanks, Good morning, guys good.
Good morning first question first question I wanted to go back to the.
Comments on on purchase originations.
<unk>.
I guess your expectations for robust purchase origination market in.
22, squaring that up against the sharp increase in interest rates that you talked about NBA purchase applications down 6%.
I guess, that's the basic idea that.
And constrained inventory as well, which can limit unit volume is that is the basic idea that.
That home home price appreciation is robust enough that it can offset.
Any any decline in unit volume that we might see is that how youre thinking about purchase originations for the balance of the year or do you think unit volume can be up as well.
Brian Thats definitely part of our consideration so very good cushion in terms of parsing through the purchase dollar volume I think the market forecast, we have seen on purchase originations estimates for 2020 due between Fannie Mae NBA continue to be between $1 seven trillion to $1 nine trillion dollars.
But there is an element in those projections that part of that is driven by home price increase in average loan amount.
And then on a unit basis, we continue to be optimistic in terms of the fundamental trend for homeownership has been very strong we have shared numbers in the past on expected number of people that reach first time average first time home buying age of 33 years old in the next four years 'twenty to 'twenty six as being higher than.
The previous four years. So we think that there are some fundamental trends that drive that demand and even with interest rates moving up with consumer balance sheet being strong and labor market being strong we think that there's a good balance in this environment now some of that still depends on what is the eventual 30 year mortgage rate for rest of the year and how does that.
Compared with other factors like home price appreciation inflation and rising wages, but your point is absolutely correct that we could end up seeing a bigger market than 2021 purchase originations market and part of that could be driven by HPA versus units.
Okay got it thanks.
My second question is on on <unk> and I know the.
In <unk> there they are trending in line with.
I guess normal loss patterns and as we move into the rest of the year just given.
Higher higher levels of macro economic uncertainty how are you thinking about.
The trend for new for new D cues and anything that we as analysts are that investors should be considering on that line.
Yes, Brian Thanks for the question.
I think we described the increase we had about 400 more.
Delinquencies sequentially they were up about 5%.
Driven.
Largely by the new large book years, the ones Rohit referenced 2020 in 2021, which represent a significant concentration in our overall portfolio those books continuing to age and go through their normal kind of loss development pattern, our expectation that that doesn't stop in Q1, they're going to.
<unk>.
To generate.
Delinquencies as they continue to age through that kind of.
Peak part of loss curves probably doesn't peak until three.
Three years force something along those lines. So I think theres, probably still some room to go for those book years I think.
It'll be interesting to see.
How the combination of both those large books intersect with some of the.
Smaller books that are producing fewer and fewer new delinquencies. So you have in.
In the first quarter of 2019 in earlier books producing.
Fewer new delinquencies, it's just simply the weight of those was overwhelmed by the concentration in the 2020 in 2021 book years, So I don't think Theres anything.
I could give you in terms of guidance.
On trend that's different than what we provided probably in our prepared remarks.
That we have large books they are continuing to age due to normal loss development pattern, that's probably going to continue.
As we head into the remainder of 2022.
Okay.
Okay, great. Thanks very much.
Thanks Ryan.
Thank you.
And I'm not showing any further questions in the queue.
Ill turn the call back over to Rohit Gupta for any closing remarks.
Thank you Victor and thank you all we appreciate your interest in enact and look forward to speaking with you throughout the year have a good day bye bye.
This concludes today's conference call. Thank you for participating you may now.
Now disconnect everyone have a great day.
Okay.
Sure.
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Okay.
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