Q3 2024 Enact Holdings Inc Earnings Call
Speaker Change: Good day and welcome to the ENAAC 3rd Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad.
To withdraw your question, please press star then 2.
Please note, this event is being recorded.
Speaker Change: I would now like to hand the call to Daniel Kohl, Vice President of Finance and Investor Relations.
Daniel Kohl: Please go ahead. Thank you and good morning. Welcome to our third 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 performance and progress against our strategy.
Dean will then discuss the details of our quarterly results before turning the call back to Rohit for closing remarks.
We will then take your questions.
Daniel Kohl: The earnings materials we issued after market closed yesterday contain our financial results for the quarter, along with a comprehensive set of financial and operational metrics.
Speaker Change: These are available on the Investor Relations section of our website.
Today's call is being recorded and will include the use of forward-looking statements.
Speaker Change: These statements are based on current assumptions, estimates, expectations, and projections as of today's date.
Speaker Change: Additionally, they are subject to risks and uncertainties, which may cause actual results to be materially different, and we undertake no obligation to update or revise such statements as a result of new information.
Speaker Change: 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 will be available on our website.
Speaker Change: Please keep in mind the Earnings Materials and Management's prepared remarks today include certain non-GAAP measures.
Speaker Change: Reconciliation of these measures to the most relevant gap metrics can be found in the press release, our earnings, presentation, and our upcoming SEC filing on our website.
With that, I'll turn the call over to Rohit.
Rohit: Thank you, Daniel. Good morning, everyone. Before discussing our third quarter results, I would like to start by acknowledging the devastation that has recently affected the Southeast.
Rohit: Our thoughts go out to everyone affected by the recent hurricane.
Speaker Change: As a company that calls North Carolina home, we were especially saddened by the brutal toll Helene took on Western North Carolina.
Speaker Change: Since Haleen, Enact and its employees have mobilized to help the victims in several ways.
Speaker Change: including volunteering at a local food bank, launching a relief effort to collect much-needed items, and donating to relief efforts through the Enact Foundation and Employee Giving Campaign.
Speaker Change: and act as deeply engaged in the communities we serve and philanthropy and volunteerism are at the core of our culture.
Speaker Change: We know that recovery from events such as these takes time, and we will continue supporting the impacted communities as they rebuild.
Speaker Change: Turning back to the business and our third quarter performance, we delivered another set of excellent results driven by continued execution against our priorities and favorable market dynamics.
Speaker Change: We reported adjusted operating income of $182 million, up 11% year-over-year.
Speaker Change: Adjusted EPS was $1.16. Adjusted return on equity was a solid 15%, and our adjusted book value for share was $33.27, up 3% sequentially and 10% year-over-year.
Speaker Change: Turning to the operating backdrop, we continue to operate in a dynamic environment and while there are potential macroeconomic risks, the U.S. economy remains strong.
Speaker Change: During the quarter, the consumer and labor market remained healthy, wages grew, and inflation continued to slow. In addition, while constrained housing supply and higher mortgage rates continue to influence the housing market in the short term, the long-term drivers of demand remain intact.
Speaker Change: Against this backdrop, our credit and manufacturing quality continues to be strong, resulting in high-quality NIW and a portfolio with considerable embedded equity.
Speaker Change: We continue to observe elevated persistency in the quarter. Although quarterly fluctuations may occur due to volatility in underlying market rates, we expect persistency to remain elevated relative to historical trends.
Speaker Change: At the end of third quarter, 70% of our insurance in force has mortgage rates that are lower than 6%.
The credit quality of our insured portfolio remains strong.
Speaker Change: At quarter end, the risk-weighted average FICO score of the portfolio was 745, the risk-weighted average loan-to-value ratio was 93%, and layered risk was 1.3% of risk-in-force.
Speaker Change: Pricing remained constructive in the quarter and we maintained our commitment to prudent underwriting standards.
Speaker Change: Our pricing engine allows us to deliver competitive pricing on a risk-adjusted basis and we continue to underwrite and select risk prudently while generating attractive returns.
Speaker Change: New delinquencies rose in the quarter, primarily driven by seasonality and the aging of our newer books.
Speaker Change: These were substantially offset by cures, which continue to be elevated above pre-pandemic level, reflecting the continued resilience of our portfolio.
Speaker Change: In addition, a significant portion of our delinquent portfolio continues to have considerable embedded equity, which could be a mitigant to both frequency and severity of claims.
Speaker Change: We believe credit performance continues to progress in line with our expectations as newer books go through their normal loss curves and seasonal delinquency patterns.
Dean will elaborate on that performance shortly.
Speaker Change: I mentioned that our credit portfolio remains strong, and during the quarter, we released reserves of $65 million as a result of favorable credit performance and our proactive loss mitigation efforts.
Speaker Change: We continue to seek strong cure performance and remain well-reserved for a range of scenarios.
Speaker Change: We continue to carefully manage our expenses during the quarter, maintaining a focus on controlling costs and driving efficiency, while also investing in technologies and processes that improve the customer experience and our business operations.
Speaker Change: Overall, despite the inflationary environment, our full year 2024 expenses before non-recurring restructuring costs are on track to be flat to down as compared to 2023.
Speaker Change: I'll shift now to our capital position, which remained robust. At quarter end, our PMIR sufficiency was 173 percent, or $2.2 billion of sufficiency, and approximately 79 percent of our risk in force was subject to credit risk transfers.
Speaker Change: Our capital position and cash flows have enabled us to effectively pursue our capital allocation priority.
Speaker Change: These priorities, in order, include supporting our policyholders by maintaining a strong balance sheet.
Speaker Change: funding attractive new business opportunities to diversify our platform and returning capital to shareholders.
Speaker Change: As it relates to the first priority, I've already discussed our strong capital position which remains well in excess of PMI's requirements.
for our second priority.
Speaker Change: We continue to invest in initiatives to drive growth in our core MI business, including pursuing opportunities to deepen our existing relationships with lenders through technology enhancements, customer engagement, and making investments to improve the efficiency of our operation.
Speaker Change: Our third priority is to evaluate strategic opportunities that expand our addressable market and compelling adjacencies that leverage core capabilities across mortgage, housing, and credit.
Speaker Change: Just over a year ago, we successfully launched ANAKRI to take advantage of the opportunity we saw to expand our platform into the GSE credit risk transfer market.
Speaker Change: An Act RE has performed well, maintaining strong underwriting standards and an attractive return profile, and we have continued to participate in the GSC-CRT transactions that came to the market.
Speaker Change: Additionally, we achieved an important milestone this quarter with S&P assigning an A- rating and a stable ratings outlook to enact REIT.
Speaker Change: S&P's action is a testament to our successful launch of Anakri and will allow us to further optimize our capital and enhance and expand our ability to explore additional commercial opportunities.
Speaker Change: Anakri is sufficiently funded to support its growth for the foreseeable future and remains a long-term, capital and expense-efficient growth opportunity.
Speaker Change: Finally, in the third quarter, we again delivered on our commitment to return capital to our shareholders by returning $100 million through share buybacks and our quarterly dividend.
Speaker Change: As of October 31st, we have returned a total of $283 million to shareholders via share repurchases and dividends.
Speaker Change: positioning us to be in the upper half of over 300 million to 350 million guidance range for 2024.
Speaker Change: We remain committed to a disciplined and strategic approach to capital allocation, which balances liquidity and balance sheet strength.
investment and capital return to shareholders.
Speaker Change: In closing, we are proud of our strong performance in the quarter and year to date, and are grateful for our team's relentless focus on executing against our strategic priorities and delivering strong financial results.
Speaker Change: Looking ahead, we remain committed to driving shareholder value as we navigate through this dynamic environment.
Speaker Change: With that, I will now turn the call over to Dean.
Thanks, Rohit. Good morning, everyone.
Dean Mitchell: We delivered another set of very strong results in the third quarter of 2024.
Dean Mitchell: Gap net income was $181 million, or $1.15 per diluted share, compared to $1.02 per diluted share in the same period last year, and $1.16 per diluted share in the second quarter of 2024.
Return on equity was 15%.
Dean Mitchell: Adjusted operating income was $182 million, or $1.16 per diluted share, compared to $1.02 per diluted share in the same period last year, and $1.27 per diluted share in the second quarter of 2024.
Adjusted operating return on equity was 15%.
Speaker Change: Turning to revenue drivers, primary insurance and force increased to $268 billion in the third quarter, up $2 billion sequentially, and up $6 billion, or 2% year-over-year.
Speaker Change: New insurance written was approximately 14 billion, flat sequentially, and down 6% year-over-year, primarily driven by lower estimated market share.
Speaker Change: Persistency was 83% in the third quarter, flat sequentially, and down one percentage point year over year.
Speaker Change: Our portfolio remains resilient to mortgage rate volatility, with 8% of the mortgages in our portfolio having rates at least 50 basis points above the October 31st mortgage rate.
Speaker Change: Additionally, 70% of our portfolio has a mortgage rate below 6%.
Speaker Change: With these facts and continued volatility in mortgage rates, we anticipate that elevated persistency will continue to help offset lower production in the current higher rate environment.
Speaker Change: Net premiums earned were $249 million, up $4 million or 2% sequentially, and up $6 million or 2% year-over-year.
Speaker Change: The sequential and year-over-year increases in net premiums were driven by insurance-enforced growth and our growth in attractive adjacencies consisting primarily of ANAC RE's GSE CRT participation.
These increases were partially offset by higher seeded premiums.
Speaker Change: Our base premium rate of 40.2 basis points was down 0.1 basis points sequentially and flat year over year.
Speaker Change: As a reminder, our base premium rate is relatively stable, though several factors tend to modestly impact fluctuations from quarter to quarter.
Speaker Change: Our net earned premium rate was thirty six point three basis points down point one basis point sequentially as higher seeded premiums offset the increase in single premium cancellations.
Speaker Change: Investment income in the third quarter was $61 million, up $1 million, or 2% sequentially, and up $6 million, or 11% year-over-year.
Speaker Change: Elevated interest rates have increased our investment portfolio yields, and as our portfolio rolls over, we anticipate further yield improvement.
Speaker Change: During the quarter, our new money investment yield continued to exceed 5 percent, contributing to an overall portfolio book yield of 3.9 percent.
Speaker Change: Our focus remains on high-quality assets and maintaining a resilient A-rated portfolio.
Speaker Change: As we have previously stated, while we typically hold investments to maturity, we may selectively pursue income enhancement opportunities.
Speaker Change: This does not change our view that our investment portfolio's unrealized loss position is materially non-economic.
Speaker Change: Turning to credit, losses in the third quarter of 2024 were $12 million, and the loss ratio was 5%, compared to negative $17 million, or negative 7%, respectively, in the second quarter of 2024.
Speaker Change: and 18 million and 7% respectively in the third quarter of 2023.
Are losses and loss ratio increased
Speaker Change: Primarily driven by a lower reserve release in the current quarter and higher new delinquencies.
Speaker Change: Year-over-year, our losses and loss ratio in the current quarter decrease, primarily driven by continued favorable cure and loss mitigation activity, leading to a 65 million reserve release.
Speaker Change: This compares to reserve releases of $77 million and $55 million in the second quarter of 2024 and third quarter of 2023, respectively.
Speaker Change: As a reminder, last quarter we lowered our claim rate expectations on both existing and new delinquencies from 10% to 9%.
Speaker Change: reflecting continued strong cure performance in our current market expectations while remaining aligned with our measured and prudent approach to loss reserves.
Speaker Change: We maintain the 9% claim rate on new delinquencies for the third quarter.
Speaker Change: New delinquencies increased sequentially to 13,000 from 10,500, and our new delinquency rate for the quarter was 1.4%, reflective of ongoing positive credit trends and driven by historical seasonality and the aging of our newer books as they go through their normal loss curves and seasonal patterns.
Speaker Change: During the quarter, we experienced modest impact from hurricane barrel-related delinquencies, but expect a more meaningful impact from Hurricanes Helene and Milton beginning in the fourth quarter.
Speaker Change: As a reminder, we have historically seen hurricane-related new delinquencies cure at a very high rate as our policy requires the homes to be inhabitable before we pay a claim.
Speaker Change: Total delinquencies in the third quarter increased sequentially to 21,000 from 19,100 as news outpaced cures.
Speaker Change: Cures, however, remain robust as our cure rate of 57% remains significantly elevated as compared to pre-pandemic levels.
Speaker Change: The primary delinquency rate for the quarter was 2.2% compared to 2% sequentially and year-over-year.
Speaker Change: Putting it all together, we believe credit performance remains strong in the quarter, bolstered by ongoing macroeconomic resiliency, high credit quality underwriting, and strong embedded equity.
Speaker Change: Operating expenses in the third quarter of 2024 were $56 million, and the expense ratio was 22%.
Speaker Change: compared to 56 million and 23 percent respectively in the second quarter of 2024 and 55 million and 23 percent respectively in the third quarter of 2023.
Speaker Change: The current quarter and second quarter 2024 reflect expense actions taken that resulted in one-time expenses of $1 million and $3 million, respectively.
Speaker Change: As Rohit mentioned, we remain committed to disciplined expense management while also investing in our business to support growth. And during the quarter, we invested in initiatives to further modernize our technology solutions.
Speaker Change: We expect our full-year expenses excluding one-time charges to fall within our guidance range of 220 to 225 million.
Speaker Change: We continue to operate from a strong capital and liquidity position reinforced by our robust PMIR sufficiency and the continued successful execution of our diversified CRT program.
Speaker Change: As of September 30, 2024, our third-party CRT program provides $1.8 billion of P. Meyers Capital Credit.
Speaker Change: Our PMIRS sufficiency was 173%, or $2.2 billion, above PMIRS requirements at the end of the third quarter.
Speaker Change: As a reminder, in the second quarter of 2024, we further strengthened our balance sheet through our $750 million debt offering, which was used to refinance our 2025 notes.
Speaker Change: The offering extended our maturities while also reducing our annualized interest expense by $2 million.
Speaker Change: During the quarter, we paid approximately $29 million, or $0.185 per common share, through our quarterly dividend.
Speaker Change: Today, we announce the fourth quarter dividend of eighteen and a half cents per common share payable December 5th.
Speaker Change: Additionally, we continue to deliver on our share buyback program, repurchasing 2.1 million shares at a weighted average share price of $34.04 for an approximate total of $71 million in the quarter.
Speaker Change: In October, we repurchased an additional .8 million shares at a weighted average share price of $35.89.
for an approximate total of $30 million.
Speaker Change: As of October 31st, 2024, there was approximately $137 million remaining on our $250 million repurchase authorization.
Speaker Change: As Rohit noted, our total capital return to date, 2024, is $283 million, and we expect to be in the upper end of our full year $300 million to $350 million guidance provided last quarter, reflecting our continued strong performance and balance sheet.
Overall, we are incredibly pleased with our performance to date.
Speaker Change: We believe we are well positioned to close out 2024 on a strong note and will remain focused on prudently managing risk and expenses, maintaining a strong balance sheet, and driving solid returns for our shareholders.
With that, I'll turn the call back over to Rohit.
Thanks Dean.
Rohit Gupta: As I reflect on our performance and I look to the remainder of 2024 and beyond, I continue to believe that the long-term dynamics of our market remain compelling.
Rohit Gupta: Our product continues to help people responsibly achieve the dream of homeownership and our dedication to this principle underpins all aspects of our business and drives our efforts to deliver exceptional value for all of our stakeholders.
Operator, we are now ready for Q&A.
We will now begin the question and answer session.
Rohit Gupta: To ask a question, you may press star then 1 on your telephone keypad.
Rohit Gupta: If you are using a speakerphone, please pick up your handset before pressing the keys.
To withdraw your question, please press star then 2.
Speaker Change: And our first question will come from Doug Hartner of UBS. Please go ahead.
Doug Hartner: Thanks. I was hoping you could talk about the competitive dynamics in the industry right now. You know, you had one competitor take significant share in the quarter. You know, kind of what you're seeing in terms of pricing and level of competition. Thank you.
Speaker Change: Sure. Good morning, Doug. Thank you for your question. So, our perspective is that MI pricing continues to be competitive but also constructive.
Doug Hartner: The expected pricing returns, as we have said in the past, they continue to remain attractive within our risk-adjusted return appetite.
Speaker Change: and we remain confident in our ability to write new business.
Speaker Change: that delivers attractive returns and creates value for our shareholders across a range of scenarios.
Speaker Change: So I would just say we are happy with our new insurance written off $13.5 billion.
We like the pricing. We like the handwriting quality.
Great. Thank you.
Thank you.
Speaker Change: The next question comes from Mihir Bhatia of Bank of America. Please go ahead.
Hi, good morning, and thank you for taking my questions.
Mihir Bhatia: Maybe just to start first on the hurricane and how you're going to reserve for the hurricane delinquencies. I understand that there won't be typically you see a lot of cure activity or not a lot of claim activity because of the property damage but when you reserve for it how are you going to go about reserving for it?
Mihir Bhatia: Yeah, I'm here. It's Dean. Thanks. Thanks for the question. As we mentioned in our prepared remarks, we did have some modest impact this quarter from Hurricane Beryl.
You know, I, I think,
Mihir Bhatia: about 300 new delinquencies this quarter changes you know the trajectory of sequential variance from 24% to 21% or it takes the new DELC rate from 1.4 to 1.3 so pretty modest impact we made no adjustments to our reserving this quarter for barrel related delinquencies.
Mihir Bhatia: At the same time, as you know, the severity of each hurricane is unique.
and it certainly appears that
Mihir Bhatia: Hurricane Helene and Milton will have a little bit of a sharper, maybe broader impact than Hurricane Beryl. We haven't seen any reporting to date.
Mihir Bhatia: We do expect that to start coming in in the fourth quarter. In terms of how we'll reserve, we'll wait to see what's reported. You know, I guess the reminder here, and we'll take this into consideration as we think about the appropriate
Mihir Bhatia: and Daniel Kohl. And one of the things that we have to do in order to get a good claim rate to assign on those hurricane related delinquencies is that our historical experience with hurricane related delinquency shows that they cure at a very elevated rate and that they're actually effective
Mihir Bhatia: with, again, very limited claim activity. So, more to come on exactly how we'll handle Helene and Milton, and it will be somewhat determined by the magnitude of the reporting next quarter.
Then I wanted to ask about essentry.
Speaker Change: I know it's embedded in the report on the income statement on the premium income, but you do break it out on the slide. I guess the question is just on S&P. Are we at...
Speaker Change: scale now? Is it going to continue to grow and drive more premium revenue quarter over quarter? Because it's been growing pretty nicely so far. So just trying to understand how much more growth we should embed in our models for it over the next year or two.
Speaker Change: Yeah, good morning, Mayor. So, your question on an Act III.
Speaker Change: is a good one because we launched an ACRI about six quarters ago, five or six quarters ago.
Speaker Change: When we launched Anakri, our primary intent was to actually take advantage.
Speaker Change: of our core competencies and our existing infrastructure and scale to enter an adjacent space on an attractive return for our shareholders, and that's what we have done. As I said in my prepared remarks, we have participated in GSE transactions that came to the market in the quarter. But I would also say that given how we structured the entity.
Speaker Change: We are happy with the growth we are seeing in Anakri, we are happy with the returns we are seeing in Anakri.
Speaker Change: and we'll provide more visibility in the future. But at this point of time, I would say just given the size of originations market, which has been suppressed, just given the mortgage rates, as well as
Speaker Change: I would just think of this as gradual growth over a period of time. So look forward to having that discussion in the future. But at this point of time, we think of that as student growth at attractive returns over a period of time.
okay
Speaker Change: And then, like, my last question, just on housing policy. Obviously, new administration coming in in January.
Look, I get the general idea that...
You know, historically, Republicans are less regulatory-focused.
Speaker Change: little bit, maybe, a lighter regulatory touch. But are there any specific regulations that we should be keeping an eye out, whether from a rollback perspective, whether from something that's inhibiting your growth, something that you're particularly paying attention to that you're looking to the new administration?
Speaker Change: to either roll back, change, implement. Anything specific we should be looking at and keeping an eye out for? Thank you.
Speaker Change: Yeah, thank you, Mayor. So, very appropriate question, given what we are seeing.
Speaker Change: I would just say, starting off, there are still seats remaining on the House side, which will determine the kind of composition of Congress. So, look forward to seeing how that comes together, especially on the House side. And then, also, I think it'll be important to see appointments in key regulatory roles.
Speaker Change: I think post Collins decision, we know that there will be, there can be changes in regulatory roles, so we have to see who are the individuals who end up in those key roles.
Speaker Change: and obviously I'm referring to FHFA, HUD, FHA, CFPB. Those roles are impactful to our industry when it comes to mortgage finance.
Speaker Change: But I would also say our product is well-received by both sides of the aisle. When you think about who our product supports every day, we support homebuyers who are most in need.
Speaker Change: And at the same time, we put our capital in front of taxpayer money every day.
Speaker Change: So, the product has appeal on both sides of the aisle, and if you think about the last two administrations.
Speaker Change: in the last eight years, we have navigated well under both administrations.
Speaker Change: under either administration and actually have very good relationships. I think this is a important point. Our industry has very good relationships, both on the regulatory and legislative side, which helps us make sure that our advocacy and our view is heard.
Thank you for taking my questions.
Thank you.
The next question comes from...
from Boz George of KBW.
Boz George: Please go ahead. Hey guys, good morning. Actually, going back to credit, I wanted to ask, what do you see as normalized delinquency ratios for the portfolio as it seasons, and can you just talk about the timeline for portfolios to get fully seasoned?
Yeah, Boz, thanks for the question.
So, you know, normal or average delinquency development curves.
Speaker Change: generally start to increase obviously from the book's origination and generally peak.
Speaker Change: Between years 3 and years 4, peak is a little bit of a misnomer. It's kind of plateau, so it kind of levels off generally in that 3 to 4 year time horizon, and then takes, you know, 12 to 18 months later, it starts to to fall.
Speaker Change: But I think, you know, looking at that on average can be a challenge. The real answer to the question is the level of delinquencies.
Speaker Change: on each book is very dependent on both the credit characteristics of the insured loans as well as the macroeconomic conditions that each book is really aging through.
Speaker Change: If I try to crystallize that, maybe just by way of example, you know, the 2021 book year, which saw a much heavier concentration in refinance originations.
Speaker Change: So, it has lower loan-to-values, it has lower debt-to-income, and it has marginally higher FICOs. It also has meaningful embedded equity, given...
Speaker Change: that it's seasoned through. So, we would expect that 21 book year to produce lower delinquencies than, say, the 2022 book.
Speaker Change: which had a higher concentration of purchase origination, so higher LTVs, higher DTIs, and marginally lower FICOs.
Speaker Change: It also, the 22 book, while it has some embedded equity for sure, it has less than the 2021 book. So there's really no rule of thumb, I think, that I can provide, and I think it probably feels a little too grainy to go book year by book year.
Speaker Change: But, you know, the average is as I suggested, and the books are going to vary depending on their credit characteristics and the macroeconomic conditions.
And then the last thing I'd say, just on credit.
Speaker Change: overall, is just a reminder, whether it's a 21 or 22 book, cure activity has remained very elevated, given these books still have a significant amount of embedded equity in them. Just to maybe crystallize that point,
Speaker Change: New delinquencies in the third quarter, 92% of our news had at least 10% embedded equity.
Speaker Change: 70% had at least 20% embedded equity so we're still seeing you know the impact of embedded equity on the cure activity and when you put those two things together I think we end up in a place
Speaker Change: where we characterize in our prepared remarks that we still believe overall credit performance remains very strong through the third quarter.
Speaker Change: Okay, great. That's helpful. Thanks. And then, actually, a different topic. How much, you know, buy-down volume do you guys see in, you know, coming through the MI market, you know, a lot of the builder product, and is that sort of permanent or temporary? Just curious how much of that's getting MI.
Speaker Change: So, we have not articulated overall buy-down volume that we see in our new insurance written. We have talked about it in prior quarters.
Speaker Change: I would say majority of the volume we see is coming from the permanent buy-down product because builders actually have capacity to create a permanent buy-down product or what's called forward commitment.
Speaker Change: So, that product actually is like not a one or two-year buy-down, that's a lifetime-of-loan fixed rate, and the note rate is essentially lower than the market rate.
Speaker Change: by typically a meaningful amount, so majority of our composition is coming from that product and then a smaller portion within the buy-down product comes from the one or two year buy-downs where the first year might be bought down by two points, second year is one point, and then it comes back to market rate.
Speaker Change: And as a reminder, all the products are qualified at the fully indexed rate at the maturity of that buy-down ramp-up.
Speaker Change: Okay, so you expect no real difference, no expectation, no different expectation in terms of credit performance on that product?
Speaker Change: Now, we don't both, and we have modeled that product and looked at historical performance of that product. I know there are some concerns in the market that while the consumers have the note rate bought down, do they actually apply their income and other expenses? We haven't seen that come through in actual credit performance in prior cycles.
Okay, great. Thanks.
Speaker Change: The next question comes from Richard Shane of J.P. Morgan. Please go ahead.
Richard Shane: You haven't seen a difference in credit performance as buy downs roll off. I am curious, we're probably just now reaching the point where those one and two year buy downs are reaching the inflection point in terms of rate.
Richard Shane: is there anything on the margin that you're seeing? And again, I think everybody sees that particular product as the edge case in the current environment. And so I'm just curious if you're seeing anything there worth mentioning.
Speaker Change: Yeah, good morning. So I'll start off by just as a reminder that
Speaker Change: As I mentioned in answer to Boaz's question, majority of our product coming from that segment, we are broadly calling it buy-down, but
Richard Shane: The builder product is typically not buy-down, it's forward commitment product. That product is actually a fixed-rate product for the life of loan.
So, for that product, there's no payment shock coming.
Yeah, right.
Richard Shane: and then my comment was for the minority of that product which is temporary buy-downs.
Richard Shane: So, some of that seasoning has already shown up in terms of the rates getting normalized to the fully indexed rate and that product performing in the market.
Richard Shane: So, I would say at this point of time, we have not seen a performance differential. We look at all attributes and we still don't see that, but we continue to keep an eye and if we see any differences show up, then we will make adjustments to our underwriting guidelines.
Speaker Change: Got it. And is the market, from a pricing perspective, differentiating that product if it's got a temporary buy-down?
Speaker Change: Yeah, I'm not going to comment on pricing attributes as you well know.
Richard Shane: Am I market operates on a black box pricing for majority of the market?
Richard Shane: And the attributes we use and how we price, whether it's credit attributes, loan attributes, or geographies, is very key to our commercial strategy and our competitive strategy. So whether we use pricing strategy or guidelines to differentiate in that segment, I think it's not something I'm comfortable talking about on an earnings call.
Speaker Change: I totally understand. Can't blame me for asking though. Yeah, absolutely. What I will say is in prior calls we have talked about our mindset broadly on how we think about pricing and credit. So our principle is right price for the right risk.
Speaker Change: So underlying in that assumption is, if we see a risk in that product in any attributes, in any ways we are pricing for it. And we have an ability at a very general level to deploy that pricing in the market and deliver it to our customers. And second thing is, we always take into account layered risk on loans.
Speaker Change: So, if we believe that we are getting to a point where we have multiple layered risks in the market on a loan attribute, that that's something that we are very, very cautious about. And I commented on that percentage in my prepared remarks.
Richard Shane: So, just to give you an example, even during this quarter, we made several pricing changes and specifically targeted price increases on some layered risk and on some geographies. That just gives you a flavor of kind of how we think about pricing and deploying it in the market.
You know, it's very helpful. Thank you very much.
Thank you.
Speaker Change: This concludes our question and answer session. I would like to turn the call over to Rohit Gupta for any closing remarks.
Rohit Gupta: Thank you, Andrea, and thank you, everyone. We appreciate your interest in ENACT, and I look forward to seeing you in Miami at J.P. Morgan's Equity Opportunities Forum on November 13th. Thank you.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.
Speaker Change: Welcome to a production on the National Geological Survey Causingucoron in the Northwest Credits Recorded June 1911 In memorable memories The End