Q3 2022 Radian Group Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
One.
Good day and welcome to the Q3 2020 to Radian Group earnings Conference call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one one on your telephone you will then ear an automated message advising that your hand is raised.
Be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker, Mr. John Damian Senior Vice President of corporate development and Investor Relations. Please go ahead Sir.
Thank you.
Welcome to Radians third quarter 2022 conference call.
Our press release, which contains radians financial results for the quarter was issued yesterday evening and is posted to the investors section of our website at www Dot <unk> Dot com.
This press release includes certain non-GAAP measures that will be discussed during today's call.
Including adjusted pretax operating income.
Adjusted diluted net operating income per share and adjusted net operating return on equity. In addition, specifically for home genius segment. Other non-GAAP measures that will be discussed today include adjusted gross profit adjusted pretax operating income or loss before allocated corporate operating expenses and their related Hum.
Net profit margins at <unk>.
Fleet description of all of our non-GAAP measures may be found in press release exhibit F.
And reconciliations of these measures the most comparable GAAP measures may be found in press release exhibit G. These exhibits are on the investors section of our website.
Today, you will hear from Rick Thornberry, Radians, Chief Executive Officer, and Frank Hall, Chief Financial Officer.
Also on hand for the Q&A portion of the call is Derek Brummer President of Radian mortgage.
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.
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 2021 Form 10-K, and subsequent reports filed with the SEC. These are also available on our website now I'd like to turn the call over to Rick.
Thank you John and good afternoon, and thank you all for joining us today and for your interest in <unk>. Despite a challenging macroeconomic environment, a cooling of the mortgage and real estate markets I am pleased to report another very strong quarter for radian.
Our teams remained focused across our three areas of strategic value creation growing the economic value and future earnings of our mortgage insurance portfolio, buoyed, our homogeneous business and managing our capital resources.
Frank will discuss the details of our financial results. Shortly before he begins let me share a few thoughts and observations about today's macroeconomic environment. The impact it has on the mortgage and real estate markets and our business.
And more specifically, how we are positioned to navigate the road ahead.
Clearly there has been a significant macroeconomic shifts in 2022, including a 40 year high rate of inflation, a dramatic increase in interest rates financial market volatility a significant widening of credit spreads and heightened GOP geopolitical risks. This is all despite a resilient job market.
At a very low unemployment rate across the country.
For our business in terms of.
Claims paid aside from the strength of underwriting origination and the quality of loan Servicers. One of the most important factors is the ultimate level and duration of unemployment through the cycle.
We are closely monitoring the wide range of forecast by economists related to the projected unemployment tax. The good news is is that our portfolio has been well underwritten. It has a strong overall credit profile with meaningful embedded equity in fact, approximately 89% of borrowers that are default portfolio today.
They have greater than 20% equity in their home.
Initially we have distributed a significant amount of the risk to the capital reinsurance markets.
Over the past few years, we've been leveraging our proprietary analytics to evaluate markets assess risk and price on a geographic basis, which we believe strengthens and protects our portfolio for this cycle.
And from a housing perspective after a two year run where the real estate market saw a significant gain in home prices wholesales that began to slow in the inventory of existing homes for sale.
Main slow based on historical standards home prices are now showing a rapid reversal off their record highs across the country.
And although the rise in mortgage rates has certainly created an affordability issue. Another important variable in the market is a supply and demand imbalance. There are millions of millennials expect it to continue to reach the prime home buying age for the next several years and there is an extreme shortage of affordable housing.
Which is further challenged by homeowners that have a mortgage note rate in the mid 2% to low 3% range and are less likely to move.
Although for the remainder of 2022, and then into 2023 economists generally expect.
We agree a peak to trough single digit decline in home prices nationally.
Which they vary greatly across local markets. We believe the short supply of affordable homes and the strong demand from first time homebuyer will lead to a more healthy and stable national housing market in the years ahead, which will continue to support it provide tailwind for purchase market growth in 2024 and beyond.
And from a mortgage market perspective mortgage interest rates have more than doubled over the past year, we achieved a 20 year high while the number of mortgage applications fell last month to a 25 year low the most recent mortgage origination forecasts.
For a smaller origination market in 2023 with purchase originations expected to decline somewhat from 2022% to 2023, let me spend a few minutes discussing how we are positioned to successfully navigate this environment in terms of our businesses for our mortgage segment, even as the macro economic environment.
Remains challenged we expected IW volumes to slow over the next year, we expect to continue to see opportunities to put our capital to work at attractive risk adjusted returns.
By leveraging our proprietary analytics and radar rates platform focused on driving economic value.
<unk> been able to calibrate our dynamic risk based pricing to address the risks and opportunities that we see in the current market.
And we continue to execute our aggregate manage and distribute mortgage insurance business model focus on lowering our risk profile.
In the through the cycle volatility of the business, we have been modestly increasing our pricing to better reflect today's environment and have seen some evidence of price increases among our mortgage insurance peers as well as a reminder, the continued increase in mortgage interest rates is driving higher persistency across our large and valuable.
Insurance in force portfolio, which we expect to fuel continued portfolio growth.
The increase in interest rates has also resulted in higher yields across our $5 6 billion.
Investment portfolio, which generates incremental income that flows directly to our bottom line.
And perhaps most important is that the quality of the mortgage industry is low manufacturing and servicing processes remained strong.
So our whole genius segment, we experienced a further decline in <unk> revenues during the third quarter due to the rapid decline in industry wide mortgage and real estate transaction volume.
As a result, we are making the necessary adjustments to our expense structure to reflect the changes we see in the environment. Despite reduced market volumes, we continue to see growing interest in our <unk> products and services from lenders real estate agents and real estate brokers, which helps to reinforce the future growth opportunities for this.
Business, albeit at a slower pace than originally expected due to market conditions, frankly will provide an update on our <unk> financial results in terms of capital liquidity, we are well positioned for the environment ahead at September 30, Radian group maintained nearly $850 million of total holding company liquidity.
<unk> guarantees available assets under Pmiers totaled approximately $5 4 billion.
Resulting net of Pmiers cushion of $1 6 billion or 44%, which we believe positions us well to navigate this environment. We continue to remain nimble in terms of utilizing risk distribution structures to manage required pmiers capital by optimizing between the capital and reinsurance markets based on best execution.
<unk>.
In terms of managing our cost structure.
While our strategic priorities remain unchanged. We also remain focused on driving operational excellence across our businesses over the last several months, we've evaluated our enterprise wide expense structure and developed a plan to align our overall expenses and resources to better reflect the current market environment, while supporting our strategic.
Priorities during the third and fourth quarter, we have taken actions to reduce the run rate of our cost of services and operating expenses, which we expect to begin fully realizing that in the first quarter of 2023, Frank will provide details on these actions as you've heard me say before our company is built to withstand economic.
Cycle significantly strengthened by.
By the P Myers capital framework dynamic risk based pricing and the distribution of risk into the capital and reinsurance markets.
We remain committed to our business strategy across our mortgage and whole genome businesses and are making the adjustments to our cost structure that are reflective of the economic environment to help ensure our success.
Our team just hosted well over 100 meetings at the annual mortgage Bankers Association convention discussing our mortgage and home <unk> products and services or <unk>.
Personally met with many Ceos and other leaders from across the industry to listen to their needs.
Heard loud and clear that our core competencies related to credit risk management, and real estate data and analytics combined with our set of innovative digital products across the mortgage and real estate ecosystem are becoming increasingly valuable to them as they re imagine their businesses towards a more digital future.
It was clear to me from my meetings that they want and need radian to work with them to meet their emerging strategic needs and while we navigate through the reality of lower industry volumes for the near term, we will continue to leverage our outstanding customer relationships and our diversified set of innovative products and services as well as our experience.
And passionate teams to provide the solutions our customers need to drive our future success, we believe our high quality insurance portfolio innovative homogeneous products and our strong capital and financial flexibility are valuable strategic assets that position us well today and in the future now I would like to.
Turn the call over to Frank for details of our financial position.
Thank you Rick and good afternoon, everyone.
To recap our financial results issued last evening, we reported GAAP net income of $198 3 million.
Or $1 20 per diluted share for the third quarter of 2022 as compared to $1 15 per diluted share in the second quarter of 2022, and 67 cents per diluted share in the third quarter of 2021.
Adjusted diluted net operating income was $1 31 per share in the third quarter of 2022.
<unk> to $1 36 in the second quarter of 2022, and <unk> 67 per share in the third quarter of 2021.
I'll now turn to the key drivers of our revenue.
Our new insurance written was $17 $6 billion during the quarter compared to $18 $9 billion in the second quarter of 2022, and $26 6 billion in the third quarter of 2021.
New insurance written for purchase transactions was $17 3 billion.
A decrease of 27% year over year.
Purchase volume accounted for 98% of our total new insurance written for the third quarter of 2022 compared to 90% in the third quarter of 2021.
Our reported quarterly annualized persistency rate increased to 81, 6% this quarter compared to 67, 5% a year ago.
Mary insurance in force increased to $259 1 billion this quarter showing growth of seven 3% year over year.
We are modifying our expected insurance enforced full year growth rate for 2022, so about five 5% due to servicer reconciliations on our single premium policy cancellations and a reduction of NII W expectations due to slowing originations.
This is down from our previous full year 2022 growth expectation of approximately 7%.
Monthly premium insurance in force has grown 12% year over year and represents 85% of our total portfolio as shown on webcast slide 11.
Total net premiums earned were $242 million in the third quarter of 2022 compared to $253 9 million in the second quarter of 2022, and $249 1 million in the third quarter of 2021.
Webcast slide 12 shows the trend in mortgage insurance in force portfolio premium yields over the past five quarters, including the impact to our net yield from ceded earned premiums related to our most recent quota share reinsurance agreements starting in the third.
<unk> 2022.
This trend is consistent with our expectations of an approximate two basis point decline in normalized direct enforced yields during the full year 2022, and our expectation remains unchanged.
The yield on our investment portfolio has increased approximately 100 basis points since the third quarter last year to 324% this quarter and our investment income has increased 43% compared to the same quarter prior year.
The rising interest rate environment contributed to this increase in investment income is expected to continue to be positive for the reinvestment rate of future cash flows.
However, as in the prior quarter rising interest rates during the quarter had a negative impact on period end market values and increased unrealized losses on the investment portfolio, which negatively impacted our book value. Since these unrealized losses are primarily recorded directly to our stock.
Holders' equity through accumulated other comprehensive income and loss.
As we have noted on webcast slide eight we do not expect to realize these losses as we have the ability and are likely to hold our investments to maturity and the unrealized losses are expected to diminish as security values are expected to trend to par value as they approach their maturity dates.
Our ability to hold securities to maturity is another benefit of our strong operating cash flow and financial strengths.
Our home genius segment revenues were $25 1 million for the third quarter of 2022 compared to $32 $3 million for the second quarter of 2022 and.
<unk> $45 1 million in the third quarter of 2021.
Our reported home genius pre tax operating loss before allocated corporate operating expenses was $20 million for the third quarter of 2022 <unk>.
Compared to $12 million for the second quarter of 2022 and $600000 for the third quarter of 2021.
Our reported homogeneous adjusted gross profit for the third quarter of 2022 with $6 3 million.
<unk> to $11 2 million for the second quarter of 2022, and $17 9 million.
For the third quarter of 2021.
A reconciliation of our home genius non-GAAP measures to the comparable GAAP measures can be found on exhibit G.
In light of the significant origination market volatility and uncertain economic landscape that Rick discussed earlier and the resulting impact. This has on our whole genius segment revenue we are withdrawing all prior guidance on our homogeneous segments.
We remain focused on improving the overall performance of the segments and continue to focus on achieving profitability.
Positive cash flow and the creation of positive operating leverage over time.
Moving now to our loss provision and credit quality.
As noted on webcast slide 15, we had a benefit of $97 5 million and our mortgage provision for losses for the third quarter of 2022 compared to a benefit of $114 2 million in.
In the second quarter of 2022, and a loss of $16 8 million in the third quarter of 2021.
Also as noted on webcast slide 15, the provision for losses for the third quarter of 2022 includes positive reserve development on prior defaults of $136 $7 million.
This positive development was primarily driven by more favorable trends in cures than previously estimated aided by the accumulated benefit of home price appreciation.
Which resulted in a change to the assumptions related to prior period defaults.
While the strong home price appreciation experienced in recent years is also expected to benefit our current period, new defaults, we maintained our prior quarter assumptions for those defaults for the third quarter of 2022, including the default to claim rate assumption on new defaults at 8% as we can.
Continue to closely monitor the trends in tears and claims for our default inventory.
While also weighing the risks and uncertainties associated with the current economic landscape.
Keep in mind that the current economic landscape could impact our future claim rate assumption on new defaults differently than prior period defaults simply because there has been a larger buildup of home price appreciation and the older origination vintages and it is possible for our claim rate expectations to directionally.
<unk> diverge between older and newer origination vintages.
As of September 32022, 98% of new defaults from the second quarter of 2020, the largest COVID-19 related default quarter have cured.
These favorable trends for defaults reported in 2020 were the primary catalyst for the positive reserve development reported this quarter.
For additional context based on the continued strong share volume, we have reduced the default to claim rate assumption for the large population of defaults first reported in the second quarter of 2020, so an ultimate rate of approximately one 5% this quarter.
Compared to two 5% last quarter and our original assumption of eight 5% in the second quarter of 2020.
Now turning to expenses.
Other operating expenses were $91 3 million in the third quarter of 2022, an increase compared to $95 million in the second quarter of 2022, and $86 5 million in the third quarter of 2021.
The increase in other operating expenses as compared to the same quarter. Prior year is primarily related to increased employee expenses and our whole genius segment since prior year of $8 4 million, partially offset by a $4 million decrease in mortgage operating expenses.
To aid in the analysis of our operating expenses, we have provided additional segment level detail on press release exhibit E.
And as Rick mentioned earlier, we have embarked on a significant effort to better align our expenses and workforce to our current and expected work environments and efficiency goals in response to what had been an upward trend in our expense base to almost $90 million a quarter on a normalized basis.
Based on our actions to date, we expect the run rate impact of these changes when fully implemented to begin to be recognized in the first quarter of 2023, when we expect ongoing quarterly operating expense levels to be between 80% and $85 million on a consolidated basis.
In addition to the benefit we expect to receive in our other operating expenses.
We also expect an annual $15 million reduction in our 2023 cost of services line item in our home genius segments.
We will continue to provide updates on our expense run rate estimates and our progress in achieving our efficiency objectives.
Now moving to capital and available liquidity.
As Rick mentioned Radian guaranty's excess P. Myers available assets over minimum required assets was $1 6 billion as of the end of the third quarter, which represents a 44% pmiers cushion.
As of September 32022, we have reduced radian guaranty's pmiers minimum asset requirements by $1 2 billion.
By distributing risk through both insurance linked notes reinsurance and other third party reinsurance arrangements as noted on press release exhibit K.
As previously announced in July 2020 to Radian Guaranty agreed to terms on a quota share reinsurance arrangement with a panel of highly rated third party reinsurance providers under this new agreements in the third quarter of 2022, we began to see 20% of the exposure on.
The policies issued between January one 2022, and June 32023 subject to certain conditions.
For Radian group as of September 32022, we maintained $573 million of available liquidity.
Total liquidity, which includes the company's five year $275 million credit facility.
$848 million as of September 32022.
Our available liquidity as of September 32022 benefited from a $32 $5 million ordinary dividend from our radian reinsurance subsidiary.
In 2023, we also expect that radian guaranty will be able to pay ordinary dividends to radian group without prior approval from our regulators.
The first time since before the great financial crisis.
The dividend amount is formula driven based upon statutory capital levels and other factors and it is expected that the potential amount payable in 2023 will be muted when compared to 2024 and beyond.
During the third quarter of 2022, we repurchased nine 5 million shares at an average share price of $20 53.
Furthermore, in the month of October we utilized the remaining purchase authorization under the share repurchase program by purchasing an additional 49000 shares at an average price of $19 81.
Year to date, we have purchased $19 5 million shares at an average share price of $20 52.
Which represents 11, 1% of our 2022 beginning of year share counts.
Execution of our share repurchase program, followed our historic value based approach as we repurchased shares at a discount to our GAAP book value per share and potentially a further discount to book value per share. When also considering the expected future earnings from our in force mortgage insurance portfolio.
And the expected temporary market value adjustment of our investment portfolio noted in accumulated other comprehensive income and loss.
Since 2015, we have repurchased over 85 million shares and returned almost one $5 billion to shareholders through our repurchase programs.
We also continue to pay a dividend to common stockholders during the third quarter of 2022, we returned approximately $33 million to stockholders through dividends.
Year to date through October we have returned over $504 million to stockholders through both share repurchase activity and dividends.
Our future capital plans, we will continue to be based upon the current and expected capital needs of our business optimizing our overall cost of capital and capital structure and consideration of broader risks in the current economic landscape.
Given the capital strength that radian guaranty, and the resiliency financial performance and expected future earnings of our enforce mortgage insurance portfolio.
We believe that we remain well positioned to support our businesses and deliver value to our shareholders I will now turn the call back over to rich.
Thank you Frank before we open the call to your questions I want to highlight that we are pleased with our results.
We remain focused on executing our strategic plans, we believe our mortgage insurance team is well positioned to navigate the macroeconomic environment and continue to build the economic value of our insurance portfolio.
We remain excited about the future of homogeneous based on the market response to our innovative products and services.
We continue to strategically manage capital by maintaining strong holding company liquidity of P. Myers Cushing.
Opportunistically repurchasing shares and paying the highest yielding dividends in the industry to stockholders.
We're driving operational excellence across our businesses and aligning our overall expense structure and resources to reflect the market environment and our strategic priorities.
And as I noted last quarter, we are extremely proud of our success over the years and ensuring the American dream of homeownership.
No, we really unique position to do even more our affordable Homeownership initiative is focused on addressing the access to affordable sustainable of equitable homeownership, leveraging our expertise and local partnerships to help address homeownership barriers for people and communities of color.
And finally I want to thank our team for the outstanding work they are doing each and every day.
Now operator, we would be happy to take questions.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.
And today's first question will come from the line of Mark <unk> with Barclays. Please go ahead.
Yeah. Thanks, I was hoping you could comment on any thoughts you may have on the potential implications for your business of the Fhfa's proposed price adjustments for the GSE.
Yeah. Thanks, Mark this is Eric.
Kind of tough to say exactly what the impacts going to be.
We certainly support the change.
Paul in terms of focusing on lowering costs are low and moderate income borrowers. The other thing to keep in mind is still our expectation that at some point, although it's probably a 2023 of that that wed see a reduction on the FHA side.
So it's a little tough to say what the impact would be I'd say overall, we don't expect to see a huge impact the other thing to keep in mind.
Hey, Mark it's kind of been a bit reduced in size. So if we had to estimate it in terms of.
The increase in the semi market mid probably estimate it being in the single digits.
Okay. That's helpful.
And then thanks for the comments on what Youre seeing in pricing.
Just curious are you adjusting pricing in a manner just to support.
Your target returns across all business are you selectively increasing pricing in certain areas to try and avoid.
Pockets of risk that you don't want to get.
Yes. This is Derek again, so in terms of pricing, we've been adjusting pricing upward broadly really in Q3 until October and so when we think about pricing. We are really looking at relative value. So when we look at that for instance, if we see less relative value, we'll adjust pricing up more.
So I think we kind of look at the pricing, we adjusted pricing up more on that below 680, FICO with some of the layered risk statements.
But certainly take into account increased macroeconomic uncertainty.
<unk> for our home price changes and so I would say generally what we've seen I think overall in the industry is pretty broad based change in some areas a little bit more than others I think some moving faster than others I think we've probably been a bit more aggressive than the market overall in terms of our pricing changes, particularly in the latter half of Q2.
And so as we think about Q4, we would expect to see a decrease probably in that <unk> market share in light of that.
Okay. That's really helpful. Thank you.
Yes.
Thank you one moment for our next question.
That will come from the line of Doug Harter with Credit Suisse. Please go ahead.
Thanks.
With pricing.
Pricing can you just talk about the relative change in pricing.
You have made on your policies and how that would compare to kind of the higher cost that youre seeing on.
Islands or ex ol reinsurance just to.
Kind of get a relative sense of how different parts of the market our pricing and the risk.
Sure. So in terms of that and we've talked about this in the past as we are presenting our pricing we're not factoring in the cost of risk distributions. So really the focus and factoring in our change in terms of macroeconomic view, where we see market clearing levels are really trying to find that.
Pieces or parts of the market that have the highest relative value and economic value not factoring in risk distribution now that being said certainly what we've seen on the risk distribution side.
A much wider spreads on the island market, we haven't seen the traditional reinsurance market kind of price up as much youre starting to see a little bit of it and I think from our perspective, certainly what you've seen on the island side and that spread widening has not really warranted by what we view as the fundamentals in terms of the business, we're writing in <unk>.
We are seeing from a market clearing level perspective, and I think that has caused us to certainly not issue in the aisle and market recently in light of that we just see that relative value and being more accretive for us to hold that risk given the market clearing levels that we see and that is not terribly surprising more closer to the market. So sometimes.
You could see those who are further away from the market from our perspective overreact in terms of the way that repricing the market.
Understood I appreciate that answer thank you.
Thank you one moment for our next question.
That will come from the line of Bose George with <unk>. Please go ahead.
Good afternoon.
Just wanted to ask a clarification on the debt service. The reconciliation is that just a lag in terms of services reporting cancellations to you and does that just show up as like more cancellations next quarter.
In short the answer to that is yes, right on point okay.
Okay. Okay, great. Thanks, and then actually switching to leverage.
Actually leverage and buybacks.
Debt to capital it ticked up a little more like 27, five just kind of a little bit above the high end of your range. So when we think about buybacks going forward should really focus on excess earnings is the driver or does that jumping that convinces contingency reserves in 2024.
Sort of help the cadence or should we really stick more to sort of what GAAP allows you to do or what you're comfortable doing under GAAP leverage.
Yes. This is Frank.
On the on the debt to cap ratio. There are two things that have actually impacted us recently.
Go forward basis.
Or excuse me have impacted our current period debt to cap ratio. One is a OCI itself and that's about 250 basis points.
A decrease or excuse me of a decrease in debt to cap and then the share repurchase.
Is another call it 200 basis points and so both of those factors that sort of impacted our leverage one.
Certainly, we're very comfortable with the amount of share buyback that we have the other one we're mindful of.
Our next.
Next maturity is coming up.
In October of 2024.
So we could have an opportunity to delever further there, but in the interim our equity continues to grow so.
We're very comfortable at the level, where we sit today and we're obviously very mindful of it in our capital planning altogether, but but those are sort of two near term drivers of why you've seen.
An uptick in that.
Okay, great. Thanks.
Thank you one moment for our next question.
That will come from the line of me here Bhatia with Bank of America. Please go ahead.
Hi, Thank you for taking my question.
I think the first thing I wanted to just touch checkout wanted to get clarity on what happened with the buyback authorization I mean, it seems like all used all of the last one I'm just kind of surprised that you didnt have another one in place is this just a timing thing related to board meetings or something I'm, just a little surprised by that any clarity there.
Yes, I'm here. This is Frank if you recall, when we put that share repurchase authorization in place.
It had a two year term to it and I would say that the market conditions relative to the value based targets and trigger points that we have in our <unk>, one plan, where such that that we.
We.
We went through the $400 million very quickly because of the market price.
Certainly very comfortable with that as a possibility when we put the <unk> one plan in place from a shareholder standpoint.
It certainly has maximum impact when youre buying back below book value and when you front end loaded if you will so we're comfortable with all of that.
As you've heard us say in the past our capital plans are announced at the time.
When we actually execute on them. So this.
This is not uncommon for us to exhaust the share repurchase plan.
And then have some delay before future capital plans and actions are announced and I would say the landscape to now as it relates to just overall capital management.
Something that we're always very thoughtful about what the economic landscape right. Now is one that I think we want to be.
Perhaps extra careful around we have an abundance of capital we have a good line of sight into our capital flows.
<unk> basis, so we're very comfortable with where we said, we just want to be very thoughtful and careful as we always are with the planned uses for those for that capital.
Yes Mihir. This is this is Rick I also I think towards Goodland, Frank or mines.
Revise the audience, how many shares we bought back this year or 11% of our outstanding shares and I think since 2015 Frank.
So something like 80 million shares I think if I've got that number right that's right.
Yep.
Got it.
I appreciate that thank you.
Thank you one moment for our next question.
And that will come from the line of Eric Hagen with BTG. Please go ahead.
Hey, Thanks for taking my question.
First one is just how do you think about reserving for credit in this environment based on criteria like debt to income ratio like how big of a driver or is that relative to other factors at the loan level, which.
Drive their decisions for reserve in thank you.
Yes. This is Frank I'll start and then hand, it over to Derrick, but the reserving that we do just as a reminder, our reserves estimates or an accounting estimate that we made.
Each quarter based upon current information about the.
The loss content that we expect to see in the in.
In the delinquent loan portfolio. So we take into account current views on the economic environment, what we're seeing as far as performance cure activity et cetera historic performance et cetera, and do our best to look forward.
Into where we think risk factors, which is why I highlighted in the prepared remarks that there could be a potential divergence in what youre seeing from.
Current period defaults or more recent production vintages relative to older production vintages simply because of the amount of home price appreciation thats embedded in there but.
So those are all factors that we take into account when we establish our reserves telecom if you'd add anything to that.
I'd just add in terms of the kind of the drivers of the reserve it's much more driven by kind of macroeconomic trends. So if you kind of think about it kind of a view in terms of unemployment home price appreciation and some of those borrower characteristics at origination become less significant in terms of trying to determine the probability of default will roll to claim.
Once our borrowers in default, it's more indicative as to whether they can in default once they are in default and the driver becomes much more in terms of again home price appreciation and re employment rates are a bit of a pickup.
The driver from a reserving perspective.
Got it that's helpful detail. Thank you.
I'm looking at some of the more seasoned island transactions, where the detachment point has risen materially as the capital structure is de Levered maybe.
Maybe you can discuss the flexibility that you have to re lever those transactions, even even against the backdrop of higher costs like you guys have discussed.
I appreciate it.
Yeah again, I'll start in Canada to Eric for additional color. This is Frank.
As we did this period when we're looking at risk distribution and the islands in particular, if the attachment points.
Our relatively high.
And we don't expect to see much benefit from a from.
From a risk distribution perspective, and we're also.
<unk> are no longer receiving P. Myers credits worth it it doesn't really serves.
<unk> purpose for us so to the extent that we have the opportunity to to unwind those sooner, we'll take advantage of that.
Derek I don't know if you'd add anything.
In terms of as you think about re levering one potential thing parties can do is potentially a purchase kind of outstanding positions in terms of the tranches to potentially read my borrowed that hasnt been generally done that much in terms of the market. So from our perspective, we really are looking at that cost of capital the possibility that those structures actually a patch and then what sort of a tale.
They provide an addition, what sort of capital relief, we're getting to the extent that we analyze that regularly in terms of kind of when we have a call option kick in and if we don't see kind of a return from a cost of capital perspective in terms of keeping the structure in place.
Actually terminate the structures.
That's helpful detail. Thank you guys very much.
Thank you and speakers I'm showing no further questions in the queue. At this time I would now like to turn the call back over to Mr. Rick Thornberry for any closing remarks.
Thank you and thank you all for joining us today.
And for your continuing interest in right now.
I'd like to take a moment to share our thoughts and prayers with all we're dealing with the aftermath of Hurricane Maria and we're all very familiar with some of the.
The tragic <unk>.
Structure, that's gone on down there, we want to share our thoughts and prayers with those that are impacted and before we close the call I know many of you are familiar with our annual fundraiser for the NBA opening stores Foundation, an incredible organization that shares our mission of enabling and protecting the homeownership by helping families with critically ill or injured.
Children to remain in their homes.
While their children are in treatment truly a special cause near and Dear to our current radio.
On a personal and professional level, we launched this year's campaign during the MBA annual convention and I want to thank all of you who have helped contribute to this outstanding cost and just to let you know we're going to continue to fund raise for this through November 18th. So you can visit radian opens doors dot com.
You'd like to learn more if we didn't have such passion around the cause I would share with you about <unk>.
We're excited about it and really enjoy supporting this organization. So again. Thank you all for joining and I look forward to speaking to you next quarter take care. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yeah.