Q2 2022 NMI Holdings Inc Earnings Call
Okay.
Good day and welcome to the N M. I Holdings, Inc. Second quarter 2022 earnings Conference call. All participants will be enabled Shlomi mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone shop.
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Please note this event is being recorded.
I would now like to turn the conference over to Mr. John Swenson. Please go ahead Sir.
Thank you operator.
Afternoon, and welcome to the 2022 second quarter conference call for National M. I.
I'm, John Swenson, Vice President of Investor Relations and Treasury.
Joining us on the call today are Brad Shuster Executive Chairman, Adam Pullets are president and Chief Executive Officer.
<unk>, Chief Financial Officer, and Julie Norberg, our Chief Accounting Officer.
Financial results for the quarter were released after the close today. The press release may be accessed and minimize website located at national <unk> Dot com under the investors tab.
During the course of this call we may make comments about our expectations for the future.
Actual results could differ materially from those contained in these forward looking statements.
Additional information about the factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website.
Or through our regulatory filings with the FCC.
If and to the extent the company makes forward looking statements. We do not undertake any obligation to update those statements in the future in light of subsequent developments.
Further no one should rely on the fact that the guidance of such statements is current at any time other than the time of this call.
Also note that on this call we refer to certain non-GAAP measures.
Today's press release and on our website, we have provided a reconciliation of these measures to the most comparable measures under GAAP.
Now I'll turn the call over to Brett Thank.
Thank you John and good afternoon, everyone.
We had a terrific second quarter with strong operating performance.
<unk> growth in our insured portfolio and record financial results.
During today's call as we always do.
We will share with you the details behind our numbers and the implications for the periods ahead.
I'd like to focus however, on the macro economic environment.
I've been in this business for almost 30 years.
<unk> seen a number of economic cycles over that time.
And importantly I.
I've seen how the mortgage insurance industry overall and national EMI specifically.
Have we learned from and been transformed by past experience.
We do see an emerging set of macro headwinds. However, we do not expect the economy or the housing market to deteriorate as they did in the financial crisis.
For more than a decade now underwriting standards have been disciplined and responsible across the mortgage market.
Regulatory guardrails have been enacted in the tool kit to assist borrowers through stress has grown meaningfully.
Our borrowers today have a strong credit profile.
Significant equity position in their homes, given the recent run of house price appreciation and.
<unk> benefited from record low 30, 30 year fixed rate mortgages with manageable debt service obligations.
From the start we are focused on building national MRI, and a durable risk responsible manner.
Yeah.
We've worked hard to establish a comprehensive credit risk management framework.
And in doing so we have built the highest quality insured portfolio in the industry.
And have secured comprehensive reinsurance protection for nearly the entirety of our book.
I am confident in our ability to perform across all market cycles.
We will continue to invest in our employees support our customers and their borrowers.
And deliver for our shareholders no matter, how the economy develops.
Shifting to Washington matters.
In early June the Gse's, each released their equitable housing finance plans.
Which are designed to promote equitable access to affordable and sustainable housing and address long standing disparities in homeownership.
We commend their efforts.
That national MRI, we believe that providing all borrowers with an equitable opportunity to access the housing market.
Establishing community identity and.
And build long term wealth through homeownership.
Manner that appropriately guards against systemic risk is critically important.
Nationally my and the broader private mortgage insurance industry play a uniquely valuable role in the housing finance system.
Providing borrowers with down payment support and equal access to mortgage credit while also placing private capital in front of the taxpayer to absorb risk of loss in a downturn.
Since our formation, we've helped more than one 4 million low down payment borrowers gained fair access to mortgage credit.
And in doing so have helped open the door to affordable and sustainable homeownership and communities across the country.
We are committed to equally supporting borrowers from all communities and are actively engaged in discussions with policymakers regulators, the gse's lenders and consumer advocacy groups.
We look forward to continuing to work with the <unk> as they put their equitable housing finance plans into action and.
And develop specific initiatives to support increased access and affordability in a manner that appropriately guards against systemic risk.
With that let me turn it over to Adam.
Thank you Brad and good afternoon, everyone.
National <unk> continued to outperform in the second quarter delivering significant new business production strong growth in our high quality and short portfolio continued success in the reinsurance market and record results across every key financial metric.
We generated $16 6 billion of Niwa volume and ended the quarter with a record $168 6 billion of high quality high performing insurance in force.
We achieved record GAAP net income of $75 4 million or <unk> 86 per diluted share and record adjusted net income of $74 3 million also 86 cents per diluted share.
GAAP return on equity for the quarter was 19, 7% and adjusted ROE was 19, 4%.
During the quarter. We also entered into a new quota share reinsurance agreement securing incremental risk protection for a season portion of our in force portfolio.
The transaction builds upon the broad success that we've had and the risk transfer markets to date and provides us with approximately $150 million of incremental <unk> funding capacity at an attractive cost of capital.
Overall, we had an exceptionally strong quarter and are optimistic as we progress into the second half.
Our lenders and their borrowers continue to rely on us for critical downpayment support.
Purchase demand remained strong and we see a significant opportunity to continue writing high quality high return high value new business.
We expect our persistency will continue to improve meaningfully driving sustained growth in our in force book and a further increase in the embedded value of our insured portfolio and.
And our credit experience continues to trend in a favorable direction with the performance data from our portfolio remaining resoundingly strong.
Taken together, we see a clear opportunity for continued outperformance.
We do however, also see increased risk in the macro environment.
<unk> rates and the record run of house price appreciation have strained affordability for many new borrowers and some prospective buyers are recalibrating due to the emerging economic uncertainty.
We expect the pace of home price appreciation to moderate from record levels, and we may see a modest decline in certain local markets.
Existing homeowners, however are well positioned with strong credit profiles record levels of home equity sustainable fixed payment obligations at record low mortgage rates and a favorable job market all providing foundational support.
While we can't control, how the economy, where housing market develop we can control how we are positioned to navigate through a period of stress and we've taken action and made investments from day, one to secure our performance across all cycles.
We have a talented and dedicated team to drive our success every day, we have earned the trust and partnership of our customers with our focus on service value added engagement and technology leadership with.
We prioritize discipline and risk responsibility as we've grown our in force portfolio building, the highest quality and short book in the semi industry.
We've led with innovation and the risk transfer markets securing comprehensive reinsurance coverage on nearly all of the policies. We have ever originated and we've established a strong balance sheet with a robust funding position and sizeable regulatory capital buffer.
In the second quarter and in the month since we've taken further steps to bolster our business. We are selectively increased policy pricing to reflect the emerging risk environment. We've.
We've made targeted changes to manage our mix of new business by risk cohort and geography, and we secured additional reinsurance protection and strengthened our <unk> position among other actions.
More broadly we've been encouraged by the discipline that we've seen across the private M&A market.
Underwriting standards remain rigorous and the pricing environment has generally heart and in response to emerging risks.
Overall, we had a terrific quarter delivering strong operating performance significant growth in our insured portfolio and record financial results and are optimistic as we enter the second half of the year.
We are well positioned to continue to serve our customers and their borrowers invest in our employees and their success.
<unk> growth in our high quality insured portfolio and deliver strong performance for our shareholders.
Before turning it over to Ravi I want to note how proud I am that for the seventh consecutive year National EMI has been recognized as a great place to work great.
Great place to work as a global authority on workplace culture employee experience and leadership and partners with Fortune magazine to produce the annual Fortune 100 best companies to work for list.
We believe that the quality of our team and the culture that we've established our key competitive advantages and it is gratifying to again be recognized for these strengths with that I'll turn it over to Ravi.
Thank you Adam.
We delivered record financial results in the second quarter with strong new business volume.
<unk> growth in our insured portfolio.
Continued resiliency in our credit performance and expense efficiency driving record profitability.
Net premiums earned were a record $120 9 million adjusted.
Net income was a record $74 3 million or <unk> 86 per diluted share and adjusted return on equity was 19, 4%.
We generated $16 6 billion of NHL to you in the second quarter up 17% from the first quarter.
Purchase and IW was $16 2 billion during the quarter.
Primary insurance in force grew to $168 6 billion up 6% from the end of the first quarter and up 23% compared to the second quarter of 2021.
12 month persistency in our primary portfolio improved again, reaching 76% compared to 71, 5% in the first quarter.
We expect persistency will continue to improve meaningfully as we progressed through the year, a real positive that will help drive sustained portfolio growth and embedded value gains in the second half.
Net premiums earned in the second quarter were $120 9 million compared to $116 5 million in the first quarter.
We earned $2 2 million from the cancellation of single premium policies in the second quarter.
Compared to $2 9 million in the first quarter.
Reported yield for the second quarter was 30 basis points unchanged from the first quarter.
Investment income was $10 9 million in the second quarter compared to $10 2 million in the first quarter.
Underwriting.
Sitting in operating expenses were $30 7 million in the second quarter.
Compared to $32 9 million in the first quarter.
Our expense ratio was a record low of 25, 4% in the quarter.
Highlighting the significant operating leverage embedded in our business and the success, we have achieved in efficiently managing our cost base as we have scaled our insured portfolio.
We have long signaled our expectation to achieve and sustain a mid twenties expense ratio and are proud to be delivering on this guidance.
Our credit performance continues to trend in a favorable direction.
We had 4271 defaults in our primary portfolio at June 30 <unk>.
Compared to 5238 at March 31.
And our default rate declined to 77 basis points at quarter end.
Sure activity during the quarter remained strong and we again released a portion of the reserves. We previously established for potential claims outcomes on our early Covid default population rec.
Recognizing a $3 million net claims benefit in the second quarter.
At the same time, we adopted a more conservative posture for setting reserves.
<unk>, our remaining default population and increased our average carrier carried reserve per default at June 30.
In light of the evolving risk environment.
Interest expense in the quarter was $8 1 million and we recorded a $1 million gain on the change in the fair value of our warrant liability during the period.
All remaining unexercised warrants expired during the second quarter and as such we will not see any warrant fair value changes in our financial results in future periods.
GAAP net income was a record $75 4 million or <unk> 86 per diluted share for the quarter and.
And adjusted net income was a record $74 3 million also 86 per diluted share.
Total cash and investments were $2 1 billion at quarter end <unk>.
Including $114 million cash and investments at the holding company.
Yeah.
We had $400 million of outstanding senior notes and our $250 million revolving credit facility remains undrawn and fully available.
In July Moody's upgraded our financial strength and holding company debt ratings to be a one and one respectively.
We're pleased that they recognized the strength of our credit profile operating performance financial results.
And balance sheet position in their decision.
Shareholders' equity as of June 30 was $1 5 billion.
And book value per share was $18 one.
Book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio was $19 91.
Up 5% compared to the first quarter and 19% compared to the second quarter of last year.
In the second quarter, we repurchased $25 million of our common stock.
Tiring, one 4 million shares at an average price of $17 61.
Executing at a level below our book value per share.
We have $95 million of repurchase capacity remaining under our existing authorization.
And we intend to remain flexible and disciplined in our activity going forward.
Balancing the attractive opportunity, we see to repurchase the shares at our current valuation.
Against the evolving macroeconomic environment.
During the quarter, we entered into a new quota share reinsurance agreement, primarily covering a portion of our in force portfolio that was previously ceded under our first and fourth.
We exercised our ability to call these islands and reestablished risk protection on the pools with a new quota share treaty.
The transaction effectively refreshes the coverage, we previously had under the retired islands on far more efficient terms.
Providing us with a lower risk attachment point.
Cheaper cost of capital and increased <unk> sufficiency.
The new quota share agreement is expected to provide an incremental $150 million of <unk> credit at and our staff at an estimated 3% weighted average lifetime pre tax cost of capital.
The <unk> on July one.
And it's important to note that.
It will have a different impact on individual income statement line items.
Dan The island it replaces.
The impact of the new treaty on pre tax income.
Effectively it's all in cost is expected to be approximately $1 million per quarter comp.
Compared to $1 6 million combined for the for our first and fourth Ireland in their last full quarter's outstanding.
The new Treaty will however have a more significant impact on our ceded premiums which will be offset by a sizeable ceding commission that appears as a benefit to our net operating expenses.
Reinsurance remains a core pillar of our credit risk management strategies.
Providing us with meaningful protection against losses in stress scenarios, and an efficient source of growth capital for our business.
At quarter end, we reported total available assets under <unk> of $2 2 billion and risk based required assets of $1 2 billion.
Excess available assets were $929 million.
Our new quota share reinsurance agreement is not included in these figures as it was completed after quarter end.
The new Treaty will further bolster our excess position.
And provide us with even more funding runway and enhanced financial flexibility in future periods.
In summary, we achieved record results in insurance in force.
Net premiums earned.
Total revenue.
Expense ratio.
Net income and adjusted net income.
Our credit performance continues to stand out in a favorable way.
We continue to execute in the reinsurance market on favorable terms and.
And have an exceptionally strong balance sheet.
We believe we are well positioned to continue to perform across all market cycles.
With that let me turn it back to Adam.
Thank you Ravi.
Overall, we had a terrific quarter with significant new business production, increasing persistency and growth in our high quality insured portfolio driving record revenue.
And favorable credit performance and expense discipline driving record profitability and strong returns.
We're optimistic about the opportunity we have to continue to outperform in the second half.
Stepping back this is an interesting time, one where the strength of our current performance and near term outlook stand in contrast to prevailing economic themes.
It's important to focus on our current results as they highlight the value of our strategy and long term potential while at the same time, it's equally important to acknowledge and plan for potential macroeconomic outcomes.
We've long been successful managing national EMI with discipline and a focus on through the cycle performance and believe we're well positioned to continue to serve our customers and their borrowers invest in our employees and their success and drive growth in our high quality insured portfolio and deliver strong performance for our share.
Holders thank.
Thank you for joining us today I'll now ask the operator to come back on so we can take your questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
We're using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And the first question will come from Mark Devries with Barclays. Please go ahead.
Yes, Thanks, I wanted to drill down a little more on some of the different moving pieces you highlighted some of the comments around the premium.
It sounds like.
There has been some selected price increases but.
Also like at least the latest kyocera is going to weigh on premiums in the near term how should we think about kind of the net impact on the average premium over the next couple of quarters.
Sure maybe I'll start mark by just saying that our premium yield in Q2 was 30 basis points and it was flat and just really thinking about the mechanics for Q2, we had the impact of the new <unk>.
And we had a little bit of a decline in our cancellation earnings in the quarter and that summed up to about one basis point impact on yield and that was offset really by sort of the amortization of the cost of the <unk> that we have and the islands that we have in place and so we ended up at 30 basis points sort of.
They're just touch on sort of on the moving parts with respect to <unk>.
<unk> yield for Q3 the <unk>.
Impact of the <unk> and <unk>, we've talked about it in our scripted remarks, it's more efficient and it's a fantastic deal for us, but it definitely impacts us in a different way than the islands with.
With the seat in <unk>.
35% of our ceded premiums come back in the form of ceded commissions and that impacts our expense lines and with Ireland. All of the ceded premiums come back as net premiums earned and so there is an impact on the premium yield.
The seasoned <unk>, it's more efficient.
And it certainly provides us benefits and some of those benefits flow through experienced an impact our premium yield.
So in Q3.
We estimate the impact of the.
This season <unk>, having about one five basis points on net yield.
And maybe just to balance these comments I would just say the hardening environment I think could provide us with some benefit but thats really on new production and that's been a really depend a lot on the risk missed out <unk>.
<unk> involved.
How cancellation earnings trend I think we are seeing them trend down, we'll probably see them to continue to trend down.
And I think I'll also an offset to that would be the decline.
And the amortization of the costs of our Ireland and XL wells and those are sort of the moving parts with respect to how we think about Q3 and premium yield.
Okay. That's helpful.
And then just turning to your operating expenses is there anything to call out that really drove what looks like some pretty significant operating leverage in the quarter and.
Furthermore, I guess you guys are now kind of at your long term guidance, but still exhibiting pretty significant growth in operating leverage.
Any color on kind of where we think that that might trend.
Yes, I'll talk a little bit about just.
What happened in the quarter and give you a little bit about how we think about the trend first I'll just say, we're very proud of achieving our our long run goal of targeting low to mid twenty's with our record low expense ratio of 25, 4% in the quarter and I'd just say in terms of the moving parts with respect to Q1.
Our <unk> cost declined we've talked in the past about our Tcs relationship.
We're in year two of that relationship.
And frankly, our Tcs cost declined we had we had a sort of an annual step down in costs and we picked up sort of a big portion of that here in Q1 about $1 million.
And I think the rest of the difference between Q1 and Q2, we're really focused on the difference between Q1 and Q2 and really Q1 came in with typically higher payroll costs with respect to higher 401K costs.
And our FICA reset.
If you combine those two the differences in payroll costs and the Tcs benefit we picked up in Q2, Thats really what drove the difference between Q1 and Q2, but when we look forward I think.
We're always very focused on being efficient 246 employees, we have the smallest footprint in the industry by far and I would just say, we probably expect some growth in our gross expenses.
Look we're going to continue to invest in our people our systems and in risk management and I think the other part to really factor in is the impact of the seasoned <unk> and so that 35% ceding commission is going to be an offset to opex in the future and I just say net net.
With our investments and the impact of the season <unk>, we're probably going to see a modest benefit going forward.
Okay very helpful. Thank you.
And the next question will be from Doug Harter from Credit Suisse. Please go ahead.
Hi, This is Joshua Chelsea on for Doug just one question from me.
What was the driver behind the positive reserve development this quarter and whats your outlook going forward for reserves and cures for the rest of 2022.
Yes.
We reported a $3 million.
Net claims benefited in the quarter.
Just say that we're continuing to see progress with respect to our default population or default.
Our default rate declined to 77 basis points in the quarter down from 99 basis points in Q1, and just the total number of defaults have declined we were down to 4271 this quarter and.
I would just say that cure activity has been relatively strong.
Our activity in Q2 was just slightly higher than what we saw in Q1.
So that's about 2000 cures.
Look I mean.
It's pretty pretty pretty strong results with respect to how we've been performing.
I would just say that when we combine those pieces together and we think about.
The cure activity in the pre Covid default population. The fact that defaults have declined quarter over quarter and cure rates have been relatively stable.
We that's what drove our thought process with respect to Q2.
Great. Thank you.
And the next question will be from Rick Shane from JP Morgan. Please go ahead.
Hey, guys. Thanks for taking my questions. This afternoon.
Look as we move through earning season, and we think about different.
Things that we've heard within our broader coverage every once in a while something idiosyncratic comes up in.
In terms of either pockets of strength or weakness.
And again.
I realized that what's going on from a credit perspective, it's pretty difficult to extrapolate because the.
Credit performance is so good but is there anything that youre seeing that you would call out either on a positive or negative side, that's a little bit surprising a geo a where youre seeing some HPA something interesting that youre seeing either positive or negative within the portfolio.
Yes.
Hey, Rick ill. He is an interesting time right you referenced idiosyncratic outcomes that I would say there is so much of the current data that we look at both internally and externally is telling quite a positive story, but there are obviously emerging risks that we're all tuned to that we hear about every day that we see in other ways that are emerging in a cloud of the go forward view.
When we look at it today the job market is still healthy consumer spending remains strong household balance sheets are in better shape than they were before the pandemic and most importantly, our credit performance continues to trend in a really favorable direction.
Don't have a crystal ball, but when we think about what our data is.
Is telling us today versus what the emerging themes are we do think that there's a higher likelihood that growth will slow rather than accelerate that unemployment will increase from here as opposed to decreasing further and that consumer fundamentals will soften as opposed to strengthening and all of that will have some.
Bearing on our business that will have some bearing on where volume trends. It will have some bearing on house price performance on credit performance for borrowers across the mortgage spectrum.
But theres really nothing when we try to look we look for takeout, the magnifying glass and try to identify where might we be seeing the earliest signs of a shift we look at the emerging population of borrowers who may have missed one payment, but not missed and not payments or been in default status for long enough to progress.
<unk> into a technical default definition, we look at.
The rate of early payment defaults are borrowers who come into the market within the last 12 months facing an undue amount of stress and theres nothing in even those those areas, where we would typically look for an early indication that signals a turn is on the horizon. Instead, what we're really keying off of there. It's just the general <unk>.
Line, the general macro sentiment that obviously has has been emerging over the last several months.
Hey, Adam I really appreciate the sincerity with which you approach that question, we're wrestling with the exact same stuff. So I appreciate the answer.
Great. Thanks, Rick.
The next question will be from Bose George from <unk>. Please go ahead.
Yes, good afternoon.
Just one more follow up on the expenses again, and now that you're at 25% that you've kind of targeted as it continues to grow could we see that closer to 20% that we see from some of the larger peers.
Well look we we mentioned low to mid Twenty's as long term goals, we certainly have.
A goal of continuing to manage our business with as much efficiency as possible.
We're successful in doing that which we expect to be and we continue to grow our insurance in force, we will likely see some continued improvement in our expense ratio over the long term.
I can't give you guidance, though on the timeline over which that will emerge.
Alright, that's great. Thanks.
Actually I didn't I didn't know if you gave this but what's the cash at the holding company.
Cash and investments at the holding company or $114 million.
Okay, great. Thanks, and then actually just one on the what's the duration of your investment portfolio, just when I think about the OCI kind of rolling back in over time.
At Q2, it was four three.
Okay, great. Thanks.
The next question will be from Mark Hughes from Truest. Please go ahead.
Yes, thanks, good afternoon.
I wonder if you'd make a general comment that with.
Interest rates up.
And.
Presumably.
Housing prices up.
Alright, but but still impact of the higher housing does on the need for private mortgage insurance.
Are you, saying that this thing.
Higher interest rates and their way of increasing demand for.
For your product.
Yes, it's a good question Mark what I would say the need for our support is much more driven by downpayment support than it is for what the monthly carrying cost of the home will be and so movements in interest rates themselves don't necessarily impacts the market opportunity or the penetration on the purchase side certainly the impact.
<unk> the refinancing opportunity because obviously borrowers may not find as much value in pursuing a refinancing transaction if the rise of house prices over the last several years that increase the need for our support and we have been delighted to be able to really step in and provide borrowers with the support they need and help them gain access to housing, but it is not interest.
Rates.
House prices driving.
<unk> loan balances, obviously additional need for down payment.
Dollars upfront that really increases the opportunity for us.
Understood and then thinking about the current macro environment you laid out.
When you look at some of these broader factors could have an impact on the lawsuit.
Or.
How did the reinsurers look at it obviously your new transactions.
Pretty attractive thing that attracted pricing.
Function.
Good positioning of your portfolio or would.
Would you say the reinsurers at this point or not.
Putting too much.
<unk> and <unk>.
Macro issues.
Yes, it's a good question look what I would say is right now overall, the the reinsurance market and our ability to access attractive funding with the.
Risk protection characteristics that we think are appropriate to help us manage articulation is there. The market is open it's open to us in size, it's open on favorable terms.
But our reinsurers are quite smart they honestly monitor what's happening in the environment as well, we have long term relationships with them. They understand how we manage our business. They understand that we're always on our front foot with respect to risk and managing our flows and I think that is.
That's something that helps us achieve favorable outcomes in the reinsurance market. There is certainly focused on it but in just the same way that we are still in the market providing support for our customers and their borrowers we are their customers and they are in the market continuing to provide support for us.
Even as as the macro environment evolves.
Thank you.
The next question will be from Ryan Gilbert from BTG. Please go ahead.
Hi, Thanks.
Good evening everybody.
Okay.
I was hoping to get your updated thoughts on.
Quantification of Av.
Where you think persistency can go and maybe quantify or expand on what a meaningful improvement in persistency means.
Well good I mean, Ryan I think we mentioned on the call that R. R.
As of Q2, our persistency was at 76% up from 71, 5% in Q1, and certainly we think we're on a trend to 80%.
Given the current rate environment and.
Certainly that provides a tremendous amount of value to us.
It extends the life of many of our policies, which adds to the embedded value in our portfolio and we see that as a real positive for us as an organization.
Assuming that our strong credit performance continues to trend the way it as it's going to build embedded value in our portfolio over time, and it's going to be real positive for us.
Okay.
Second question on home price appreciation.
We can look at the home price indices that are published with a lag.
Would love to get your.
Updated thoughts from your view on.
How you how HPA trended throughout the quarter and maybe.
Into July if you have any visibility in terms of like where spot prices are.
Yes look what I'd say is generally speaking, we do expect that the pace of house price appreciation.
One has slowed and then it will continue to slow and that we may begin to see some.
Some modest declines we haven't seen that yet, but some modest declines across certain markets.
We really do look at it though on a market by market basis in rate GPS, we individually assess and price for $950 or so discrete msas and so I can't give you a complete run down because every market.
<unk> will have its own rhythm is an interesting one, though where much of what we've experienced collectively over the last few years.
As has been national in scope right. We've had broad swings from an employment standpoint, right with broad strength nationally, we had broad house price depreciation nationally with obviously some differentiation market by market, what we think though that well.
We think we will see emerge going forward, though is is a much more differentiated outcome on a market by market basis, and so that's where we're monitoring but we look at it across nearly 1000 different msas nationally when we consider where credit is going and how we need to price for or manage the risk as a result.
Got it and just just to follow up on that in the geographies, where you expect home price appreciation to decline or there's a there's an increased probability that it might what do you see as the as the catalyst for home prices to move lower I think we generally think of home prices are sticky downwards.
Yeah look it's a.
It's a couple of things when we look at individual markets. We're looking at.
One where was there the most significant house price appreciation over the last few years right higher prices don't necessarily mean that higher prices from a few years ago don't necessarily mean that things will fall in the future, but it's a place for us to to start looking but then we unpack that the housing market is a market like all others thats driven by supply.
Demand dynamics and so we look what are those markets that have seen the most significant house price appreciation that have also seen the most significant supply build in recent period, either because they are markets, where there's a much larger concentration of new construction were new home sales have accounted for a larger and larger percentage of overall home sales.
Then the rest of the country or where inventory of existing homes is building and we pair that with some other data that we look at to try to get a sense for and we're on top of that do we see a greater disconnect from income levels local economic opportunity and affordability and so it's a bit of a mosaic.
That we look at we're trying to assess where we will see those modest declines again, we look at 950 or so msas and we do this on a constant continuous basis. There are some ones that are in the headlines right. Boise is an area. That's constantly referred to when we do see some of these dynamics emerging there, but there are other <unk>.
Areas in the mountain West there are areas through Texas, where we look at these same dynamics as well.
Really helpful. Thanks very much.
And again, if you'd like to ask a question. Please press Star then one.
Yeah.
And the next question will come from Bill does along with Teton capital. Please go ahead. Thank.
Thank you that's tightened capital Adam in your car.
Comments in the press release, you referenced the significant new business production, what would you dive into that in a bit more detail and discuss what that's referring to and.
And maybe how that may or may not relate to things that rich mentioned in the analyst meeting.
A year ago.
Oh sure, but simplistically when we refer to significant new business production, what we're focusing on is <unk> that we generated in the period. So we wrote $16 6 billion of high quality high return high value new business in the quarter and for US that's up a little over 17% compared to what we achieved.
In the first quarter, so we feel terrific about.
What we were able to achieve from a customer support standpoint, where we were able to support borrowers and ultimately what it allowed us to drive from an <unk> standpoint.
And to what degree do you see that 17% increase a function of new new lenders that you were working with them and your efforts on that front.
Yes, it's a good question, we do talk about this a lot, but we didn't give a stat I'll give it a week dividend in the past reactivated 35, new lender customers in the quarter, which is terrific thats consistent with where we've been but there's still some white space for us for large needle moving accounts.
Which were included in there, but in a particular quarter. The accounts that we activate the new customers that we activate have very very little impact on the <unk> that they that we generate rather those new accounts that we bring on have the potential over time to help drive future <unk>.
Unity and <unk> growth.
Great. Thank you.
The next question will be from Geoffrey Dunn from Dowling and partners. Please go ahead.
Thanks.
Can you quantify the reserve strengthening action you took in the quarter.
What portion of the $8 7 million current period provision.
Related to that.
Jeff If you if you look at it.
There is a lot that goes into it but ultimately if you simply try to isolate what's the average reserve that we established for each new default. It was roughly double this quarter compared to what it was last quarter.
Okay. So this I'm, sorry, I want to make sure I understand this but this was on the entire non Covid notice book correct.
No. So the new defaults that emerged with 1069, new defaults that emerged in the second quarter, we established roughly.
<unk> reserved for each of those entities as we had on the new defaults that emerged for the first time in the first quarter of 2002.
Okay and is that.
Claim rate adjustment or severity adjustment or a combo thereof. It's a combination of both okay. And then I wanted to go back to the <unk> to make sure I'm understanding. This I believe you called the <unk> deal in the first quarter. It sounds like you called that 'twenty one in the second quarter.
So when you referenced $1 six of that kind of cost going away that was not the Q2 run rate correct.
That's correct. So we called the 17 deal on March 25, we call. It the 2020 deal on April 25th what we referenced was the last quarter in which those deals were outstanding for the full duration of the quarter. The combined cost was $1 six so that would be the fourth quarter for IL.
2017 deal and it would be the first quarter for last quarter for the 2020 deal.
And thank you very much ladies and gentlemen. This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Thank you again for joining us we will be attending the Barclays Financial Services Conference in New York on September 13th and participating in the Zelman virtual housing summit on September 20, <unk>, we look forward to speaking with you again soon.
Yes. Thank you very much the conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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