MGIC Investment Corp (MTG) 2003 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the MGIC Investment Corp conference call. At this time all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch tone phone. I would now like to introduce your host for today's conference, Mr. Mike Zimmerman. Sir, you may begin your conference.

Thank you. Good morning and thank you for joining us on this morning's conference call. Joining me on today's call is Curt Culver, President and CEO; Mike Lauer, Executive Vice President and CFO; John Fisk, Executive Vice President of Strategic Planning; and Larry Pierzchalski, Executive Vice President of Risk Management.

Our earnings press release of today with additional information, including non-GAAP financial measures about the company's quarterly results that we will refer to during the call. The release and this information can be accessed by going to www.mgic.com clicking on the investor tab, and then news, financial, and then news releases. During the course 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 those factors could cause actual results to differ materially then those discussed in the call are in the quarter's earnings release. If the company makes forward-looking statement, we are not undertaking an obligation to update those statements in the future in the light of subsequent developments.

At this time I'd like to introduce Curt Culver. Curt?

Thanks, Mike. Good morning. MGIC had net income of $143.8 million during the second quarter lower mortgage interest rates drove new insurance written volume to a record level of $25.4 billion in the second quarter up 16% from a year ago. And 49 and a half billion for the first half of the year which was up 9% from last year's record pace. Unfortunately, the low interest rates also to the continued decline in our persistency rate, which ended the quarter at just under 50%. As a result year over year insurance in force was basically flat at $194 billion. However, despite the lack of growth in the insurance in force, higher premium rates on bulk and A minus business resulted in premium growth of 17% to $337 million. In addition, the investment portfolio grew by 3% to 5 billion during the quarter.

Regarding credit loss trends, the inventory of delinquent loans continued to increase in the second quarter. The increase was attributable to the natural seasoning and the composition of the larger recent books of business, as well as the continued weakness in the economy, particularly in the Midwest where our company has a significant market share presence. As a result, we increased loss reserves by 77 million in the quarter to 842 million, reflecting the increase the delinquency inventory as well as a higher average loan amount on the new delinquents. Just to give you idea, new loans are booking today on the close side are averaging $143,000, and the average in the book in force is $118,000. And while paid claims in the quarter can total 97 million, we expect a dollar level of paid claims to continue to grow, reflecting the previously mentioned growth of the delinquency inventory and the higher loan amounts.

In addition, reflecting the continued weakness in the economy, we have seen a slight deterioration of our KIR ratio, and as real estate values have slowed we have seen less loss mitigation opportunities. Both of these factors will play a role in higher paid claims in the ensuing quarters.

Regarding expenses, the second quarter was our busiest ever in terms of new insurance written in contract underwriting. In fact contract underwriting volume was up 21% from the first quarter and for the first six months was up 59% from last year's record pace. We underwrote 543,000 loans versus 342,000 last year. As a result, expenses in the quarter grew to 80 million up 24% from last year.

Regarding the remainder of the year, we expect mortgage originations and as a result our new insurance written, to continue to be at record levels driven largely by refis, although we expect pace to slow from today's level. However, with heavy refinance volume in our current pipeline we expect persistency to go somewhat lower before it finally begins to recover. As I mentioned earlier we expect the delinquency inventory to continue to grow until we see an economic recovery. As a result we will continue to see an increase in our reserves throughout the year as well as increase in paid loss development.

With that, let's take questions.

Thank you. Ladies and gentlemen, if you have a question at this time, please press the one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. If you're using a speakerphone, please lift the handset before asking your question. Our first question comes from Robert Hottenson from Goldman Sachs.

Curt, how much of your expense growth is due to contract underwriting. In other words, just taking incremental change in contract underwriting on top of your expenses, what would the expenses -- what would the expense trends have been?

I'll let Mike handle that, Bob.

Bob, most of the expense increase that you're seeing is related to the front end side and that's the contract underwriting. Remember, that in addition to our full time staff we've got a significant staff of part time contract underwriters. And that's been the incremental side primarily. Offsetting that, of course, is we have revenues, fee revenues, coming from that that I record in other revenues. The significant impact on expenses has been driven primarily from the front end of the business contract underwriting.

Thank you. Our next question comes from A. J. Graywall of Smith Barney.

Just a related question. With respect to the other revenues, is that related to the contract underwriting, or is there something else going on there, and the increase with that? The second question is, your reserves have gone up 50 and 80 million in the last few quarters. Can we expect a similar kind of trend in the next few quarters?

Let me answer the second part of the question first. I think with respect to reserve increases we'd be looking at this level depending on what happens to the notice levels. We do anticipate higher increases in paids on a quarterly basis. This quarter we were about 97 million. We think that's going to increase anywhere from 15 to 25 million, possibly, in the third and fourth quarter on a quarterly basis. So all things being equal, if notices were flat, that increase would flow through to incurs.

In addition if we have further increases and notices, which we anticipate, therefore you have increases that incurs to that level also. So yes, I think the trend would be in the second half of the year higher paids and higher incurreds, and possibly the same level or higher level of increase in the reserve, depending on what happens, again, to notices and the cure rates we'll talk about a little bit later.

The first part of your question dealt with other revenue, and, yes, indeed, in addition to just contract revenue fees, we also have our equity investment in C-Bass, I think we've got a disclosure on it on the back. I think they were flat for the year at about 13 million for the year, I think 13 to 14 cents, 14 cents this year, 13 cents last year. That's included in there as well as some other fees.

But the contract underwriting fees are up 47%, so they were up nicely.

Thank you.

Thank you. Our next question comes from Brad Ball of Prudential.

Thanks. This was the first quarter in which your policy with respect to excessive seeds was in effect. I wonder if you could comment on whether you saw any impact on the policy changeover in any of the quarterly results and what your expectations are going forward with respect to market share.

Well, we did see an impact on market share, although it has not been quantified yet relative to quarterly numbers. But we even saw a little bit of that in the first quarter when I think market share was at about 23%. We have had some owners convert to quarter share policy, so we've been pleased with that. But as we mentioned earlier and I have talked about many times, we have seen a deterioration of market share as indicated in the first quarter and we'll continue to what we think in the neighborhood of 21 -- 20 to 21% market share.

I'm sorry, you're premium seeded in the quarter were 29.5 million? And that's down only slightly from the first quarter. Would you expect that to decline going forward?

I'm not sure.

It's going to depend on the mix. I think right now we're in a transition period, okay, and I think it will take another quarter or so to see exactly where that is. It's flattened out and it should stay at that level and start to decline. How fast that will decline is going to depend on the runoff of these books of business, the prior books of business. You follow?

Yeah.

Also, as some of these lenders shift to the quota share, the quota share has a significant seed level, 40-45 to maybe 50%, so they will get a good chunk of the premium, but they will also get a similar share of the losses, but the losses do come after a little bit of seasoning.

You understand?

I do. Yes. Thank you.

Thank you. Our next question comes from Ken Posner of Morgan Stanley.

Hi, Curt. I'm wondering if you can talk a little bit about the loss reserving methodology. I'm a little bit more familiar with the banking protocol, so I guess the question is, when you look at the delinquencies, is the reserve entirely mechanical, a function of models, or do you have the ability to use judgment in thinking about the economy and other factors, in setting reserve levels?

It's primarily driven off of a model. Of course, we can make adjustments when we see markets changing. But remember, as we talked about earlier, we've seen some declines in some markets with respect to cure rates. Mathematically what happens, that would get spread across the existing notices, okay? So there's an immediate impact as cure rates change and across certain segments of the markets, we would extrapolate that into the remaining notices in that market and the forecast of notices. You follow?

I do. Do you use your judgment in looking at changes in cure rates in certain markets and extrapolating or does the model just pick up on that automatically?

We track it on some individual markets metrics, if you will, but we also have the capabilities if we see things changing to adjust the model with respect to we want -- I guess with respect to looking at changes in current claim activity and severity changes. So the model gives us an indicator, we make management judgments with respect to the remaining forecast, if you will.

Okay. Thank you.

Thank you. Our next question comes from Christopher Buonafede of Fox-Pitt, Kelton.

Good morning.

Good morning.

You mentioned you would expect to see delinquency inventory to grow until there's some kind of economic recovery. But given that more and more of the business or the book consists of bulk or nonprime, and as long as that stuff needs to season, won't we -- isn't it likely we won't see a massive deterioration, or drop, I should say, in delinquency inventory, even if certain economic statistics start to improve? Just because the rest of that book needs to continue to season?

Well, I mean, we're getting near a steady state on the bulk side of the business, which is where, I think you'll see, a constant state. So I don't know if it's that much more significant relative to the book itself on the bulk side, other than the economy its playing out in. On both the flow and the bulk side. But we're getting very close to that steady state relative to the bulk side.

What about even -- you take a look at the number of insured loans. The business today is being driven by bulk and A minus and subprime while prime is obviously going down because of the re-finance and what have you. Is there any case to make that while that continues to be a bigger and bigger piece of the business, we would expect to see that, that seasoning take place in the next number of years or quarters, I should say, quarters to years?

I guess there is a couple of moving pieces here. One is the economy. Two is the bulk business, the seasoning. When we get to a distributed book that Curt was mentioning, maybe that's a year or so out yet, depending on level of writings and what not, but the other point is, bulk is becoming a growing percentage of our in-force. So those two factors, the bulk is still growing, seasoning, so it gets a steady state and increasing as a part of the portfolio, and that bulk business, having a higher delinquency rate, should cause the inventory to increase for a few more quarters subject to what happens with the economy. When that exactly happens, you know, you've got the economy, how much bulk business we write, how much new bulk business we write. So there's a lot of factors in play.

Fair enough. Another question. Can you talk about the premium margin and state. It actually went up again in the first quarter. Obviously, that's being influenced by bulk. Tell me what your expectations are there.

Again, bulk transactions or levels that we enjoyed writing the policies during the second quarter, I don't know when we'll see an increase in those levels and maybe slightly lower through the remainder of the year. So I wouldn't see an increase there and on the flow side, I think that's pretty much steady state. So I think we're pretty much at the high mark relative to the premium levels.

And the premium levels on the bulk business really, you know, they have been strong because the market has been strong, spreads have been wide. But, you know, each quarter the mix of bulk transactions we get, the premium depends upon the type of transaction. Is it more subprime, more prime, and the level of coverage requested. So, you know, there's a bunch of factors there that could cause it to increase, stay the same, or decline.

Okay. All right. Thank you.

You bet.

Thank you. Our next question comes from Akiko Kokley of Endeavor Capital.

Hi, good morning.

Good morning.

Did I hear right that you said 15 to 25 million increase per quarter and stay the same in the third and fourth quarter.

Yes.

That's per quarter.

Yes.

That's bigger increase than you have been seeing, right?

Yes, Akiko remember, we do have a pretty good short-term forecast on what's in inventory relative to paid claims, all right? So they were up from 89 to -- up to about 97 in the second to first quarter. We anticipate we could see a 15 to $20 million increase in the third quarter. And probably flat third to fourth. Maybe I misunderstood you there. But I'm talking about the third and fourth quarter being higher than the second.

Oh, okay. So it's not 15 to 20 per quarter?

No. No.

Okay. So 15 to $20 million increase in the third quarter and fourth quarter.

Yes.

And you mentioned that the cure rate is slightly deteriorating. Could you give us the actual number for both flow -- and, say, a year ago?

We don't disclose that. Let me have Larry explain the significance of the decline of the cure rate with paid claims.

Remember, when we are talking about it we're talking about different markets. Every one of these rates has something to do with different metric markets, not the aggregate markets but different markets, especially in the midwest.

Especially in the midwest, yes.

Let me first define -- define the cure ratio, if we get 100 new notices reported to us, new notices are roughly 45 to 60 days old reported to us, this month, if we get 100 of them, the cure rate that I'll mention is the percentage of those that would likely cure or resolve the cure rather than claim. Typically we've been in the area of about 90% or so. So out of 100 new notices, we might typically expect about 90 to go to cure, 10 to go to claim. And that takes, you know, maybe 24 more months to run through that process, foreclosure process, cure process, claim process. So if that cure rate moves from 90 down to 89, that's roughly a 1% change in a cure rate. But the claim rate would move from 10 to 11%. So a 10% pickup.

Right.

That's the kind of ballparks and sensitivities we're dealing with.

Remember, those rates could extrapolated against X thousand notices in that particular market.

You don't expect this number to get better until the employment situation gets better?

Right. Exactly.

Okay. And on the average premium rate, you said that it's probably at the high mark this quarter. Don't you expect this for further continue going up, now that you reduced your seeding?

no.

No?

As Larry mentioned, we do have a number of lenders that have taken out quota share policies where they continue to receive 40 and in some cases 50% of the premiums, but they are going to participate at that level in the claim losses.

Okay. Thank you.

You bet.

Thank you. Our next question comes from David Hochstim of Bear, Stearns.

Thanks. Could you talk a minute about the investment portfolio and what kind of unrealized gains there were June 30th and how much the yield could come down over the next year.

That's a tough question. We've got $302 million unrealized at the end of the quarter. So what we have continued to do is improve the quality. You know, we're up 99.1% or better versus about 98 1/2 at year end. We've taken duration from about five six to five three. We're continuing to monitor that portfolio and look for quality. It's affected us obviously in the after-tax yield at the end of the quarter was 395 versus 410 in the first quarter and 422 a year ago. So it clearly, you know, where rates are. Relative to where that yield goes is directly proportional to the interest rates. Basically it's still a high quality portfolio. It's still about 80-20 on munies, 80% munies and 20% taxable. We've been successful in running it on a total return basis of about plus 10% for three years.

Could you or -- Larry talk about the cure rates how they vary from region to region? What about average claims, also, the region national differences?

Well, the major driver of our average claim is tied to the loan lone amount and coverage level. Most markets with the product going to Freddie and Fannie, having standard requirements, the coverage level is beyond 90 typically 95, and 30% cover. On the close side driven by Freddie and Fannie, those coverage levels really don't vary. Then you're left with average loan amounts vary.

In the midwest, very much like median sales prices, more modest in the Midwest, higher in places like California, limited to the conforming loan amount which is a little over $300,000. In the high cost areas, California, higher loan amounts, similar coverage leading to higher average losses paid.

On the bulk side, you know, that market is not Freddie and Fannie driven in terms of coverage. That's more of where the sweet spot is in regard to your sub execution . Some of the transaction the deal is covering the loans above us, 80 LTV down to 80, might be coverage above 70 LTVs down to 70 and may even be covering over 50 LTVs down to 50. The average coverage can vary quite a bit by the mix of the transaction.

Now, Curt reported earlier our average loan amount or flow is 143, bulk is about 140 in the quarter. But that coverage level can vary up or down, depending upon the type of transactions. Down to 80, 70, 60, or 50. Currently I think the average paid both flow and bulk are within a thousand or 2 of each other of, the low 22, 23,000 area. Another thing influencing that Curt alluded to is the economy sputters along, our loss mitigation opportunities are less. We have a couple of three choices when we settle a claim. One is to pay the percent option, so 25% of the claim amount, the claim amount being UPB plus delinquent interest and expenses. The other is acquisition. If we think we can do better than paying a percent option we'll acquire. In the past we've been able to acquire 10, 11, 12% of the claims settling that way. Then there's pre-sales where we don't acquire but we find a buyer to take the property on rather than going through the full disposition process. That's a savings to us as well. As the economy softens here, more of the claims move to the percent option settlement rather than the acquisition or the pre-sale.

Just to give you an indication on that, and slowing real estate values has played a role in that, in 2000, 38% of our policies either we did pre-sale or acquisitions on, which resulted in significant savings for the company. On the second quarter this year, 26% we did either pre-sales or acquisitions on. So you lose that opportunity to save significant dollars on those by just paying the percentage payment.

How much difference is there in cure rates between the midwest, now, let's say and the West Coast or East Coast?

We don't have that here, David.

But cure rates are lower than in the Midwest you were saying, but you have a lower average balance, too.

It's relatively speaking, cure rates in the Midwest have declined relative to the Mid West of a year ago.

Okay. Okay. Thanks.

Thank you. Our next question comes from Geoffrey Dunn of KBW.

I wanted a little more detail on paid loss expectation. This quarter sequentially your flows improved, your bulk was up about 7 million. Where do you see the biggest chunk of the 15 to 25 million increase over the next two quarters?

I think both books, I think flow and bulk. I don't know the mix of it right now but I would say generally speaking, both will be up.

Is it just seasonality this quarter that kept the flow down?

I just -- we're looking at the in-house, if you will -- we're into July, almost into August. We've got notices, and we know what the inventory is to be paid, so we've got a pretty good fix on that. I think that's going to continue by our records into the fourth quarter. I don't have a mix breakout for you. But, across the board, I would say that the increase will be across both products, bulk and flow.

Judging by the market's reaction today, it seems like investors have pretty much written off this year. If we have sort of a steady state economy, what would you expect as far as provisioning levels and development of pays in '04? Because that seems like the real question mark right now.

All all things equal there'll be a lag, so you'd see an increase in paids. If the economy improves you'll see the notices flattening out, that would drive a big decision relative to incurred. So I think the issue for us going into '04 will be as we get closer to it, how does the economy look and what's the forecast on notice development? There certainly will be an increase in paids, because just the maturing of the books. The question is does the notice level flatten out or improve relative to where the economy is? That will be a major factor in incurreds for next year.

So to be on maybe the conservative side, should we assume sort of a similar run rate on both the paids and reserve levels from the stuff we're seeing for the second half of the year?

I can't give you a forecast level at this time. I think it's too early in the year. I think as we get later into the year if we want to talk a little bit better about how we see '04, we can maybe talk about it. In theory what I just said is the paids will increase next year. Whether or not the notice level increases is really going to be a function of the development of the economy and the books. It's too early to call that now.

Okay. Thank you.

Thank you. Our next question comes from A. J. Graywall of Smith Barney.

Yes. Your coverage ratio has increased over the last couple years. I just was wondering if you can give us some color on where you expect that to go. Second, your tax rate, your effective tax rate, looks like it was down by about a percent. Could you give us some color on that.

A. J., You said coverage ratios, right?

We couldn't hear your question. Was it coverage ratios you asked?

Yes.

The percentage coverage has increased. Certainly on the bulk side it has increased as we've had more transactions with coverage down to 50%. So I think that's what's impacting the general coverage ratio regarding the second half of your question.

The tax rates, they are still being driven primarily from the increase, if you will, in our tax preference investment. That still is a larger percentage of our earnings. That's driving it primarily. And I would say that that rate will continue to go down. And probably at the same level that we're talking about right now, quarter to quarter change. Next year is a different issue depending on what the portfolio is and whether or not we invest in some of the tax benefit investments.

We looked at some investments that Freddie and Fannie have with respect to housing, we get some credits on that. We're looking at that strategy and that may be a benefit to us. For the most part it's being driven by the percentage of income coming off tax preference investments relative to operating income.

Back to the coverage ratio, where do you think -- where would you see that popping out?

Well, I think it's pretty close to topping out, given that we're almost at steady state relative to the bulk side of the business. So unless there's change in coverage requirements in the flow side of the business or if for some reason, and I can't imagine it on the bulk side, I think we're near that level.

Thank you.

Thank you. Our next question comes from Brad Marino of Viking Global Investments.

Two quick follow-ups on the contract underwriting. First of all, when you look at the other income that's nonC- bass related, is that predominantly driven by contract underwriting. Secondly can you give us some color on the contribution from contract underwriter?

Your first question is, you're right, expect for C-bass, the balance of it is primarily driven by fees with respect to business volume and contract underwriting. Relative to margin on that, is that what you said?

Contribution or margin, however you want to look at it.

We don't break that out.

Okay. Thanks.

It's really insignificant to the business, if you would.

Thank you. Our next question comes from Jordan Holowitz of Lobell Global Capital.

You gave an outlook on where you think paids are going in the next if you quarters, can you give an outlook on where you think delinquencies are going? And if you could break it down by line of business, that would be great.

I guess what I would say with respect to delinquencies, in the current state, I would anticipate that we'll see the normal sequence, if you will, of increases in notices in the third and fourth quarter. Generally we've seen that in the third and fourth quarter. I don't currently see any change in the economy that would affect it that much. We had a relative change last year. You can look at that quarter to quarter. I think we'd see a similar change this year, all things being equal. I doubt if anything could happen in the economy in the next couple of months to change that.

In fact, employment numbers continue to get worse.

Remember, delinquencies are seasonal, too. We tend to see higher seasonality in the third and fourth quarters. So other things being equal just on the basis of seasonality should cause a slight increase.

Okay. And second question, you said that you expect paids to be up 15 to 20 million next quarter and potentially flat in the fourth quarter. Are you saying it could be flat in the fourth quarter or could be up as well.

It could be up from there.

Okay.

The question that Akiko thought I was saying would be a sequential other 15 to 20. I said I didn't think that would happen. It might be flat or up slightly from the third quarter.

Okay. One more question, if you don't mind. I apologize. You increased your reserve to paid claims to 2.3 times. I know you don't usually look at it that way. But are you saying this is the lowest we're going to let it go, and if losses continue to increase the provision state at this level or could that number go down to two, or you just ignore that number completely?

You really have to ignore it because of the two factors that we are talking about. That is that you do have paid levels, but you also at the same time have notice levels happening, okay? And even if you didn't have an increase in paids, but you had a significant increase in notice level, that would change the provisioning. It's kind of dynamic, if you follow.

You're noticing the noticing level continue to rise?

What we're saying is that there's no change in our outlook relative to the third and fourth quarter. And seasonally we would anticipate the normal increase in notices in the third and fourth quarter.

Thank you so much.

Thank you. Our next question comes from Jim Kissinger.

Morning, guys. Mike, a couple of questions. First, really has to do on the reserving side. Should we look for the next couple of quarters to add $50 to $75 million of reserves above and beyond whatever the claims paid would be and that will stay up at that level until either the notice inventory drops or the confident level that delinquency levels tops out? Is that how we should be looking at this?

I think based on what you saw this quarter, that was a reasonable increase, okay, and if, in fact, notices continue to go up, it will be that level or higher. So paids certainly will increase, and the provisioning will be beyond that plus whatever happens to notices. And I anticipate that we'll see higher notices in the third and fourth quarter.

Okay. The second question has to do with market share. I'm wondering, given that you've chosen to step away from some deep seed business, are you picking up any market share to the smaller lenders who don't participate in that market where you guys can put some more of your resources? And are you going to aggressively pursue that market as you've chosen to walk away from one other market?

Well, we haven't chosen to walk away from that market, Jim, and we're still doing a lot of business with those customers that use those deep seeds. Obviously on the correspondence side of the business, whereby we have a play relative to market share to whatever we can get. Correspondence side is still a major part of the business. We're never walking away from this side of the business. But on the other side you're right on relative to our strategy, where we can get a higher level of business from customers. We have 811 people out contract underwriting for our organizations and various lender shops and we're moving those resources where we get the highest level of business from those on a profitability basis. So you're right on relative to our competitive strategy. But relative to our total strategy, we're doing everything possible to work with all our customers.

Curt, maybe it's just a nuance or little follow-up here, it's been a quarter since you've, you know, I don't know, changed your strategy a little bit. Have you -- can you quantify whether or not you've gotten any extra share? If you're overall share is now 23 or 22, whatever the number is, have you seen any pickup in share in the customers that you are putting those resources behind?

Well, we've seen a lot of increased business, but it's hard to quantify, because the market is so large and there's such an increase in total market. So we do, indeed, track by lender who is up and who is down for every customer that we do business with. Jim MacLeod and I review that monthly relative to particularly the middle tier. And we have a lot of winners there.

We can't tell, again, in many of those cases whether it's market share gains or just total market gains, if you will. So we think we have a good strategy relative to dealing with it on a financial basis clearly the best strategy. And I would suspect, as Jim and I have gone through that customer list, that our market share within the mid tier level, as well as the correspondent level of the very largest lenders has increased.

Okay. Thank you.

Thank you. Our next question comes from Geoffrey Dunn of KBW.

Just a follow-up. Can you give us cash available for the holding company for buyback, and the debt to capital level you're comfortable going up to.

I think with respect to debt to capital, we're probably at the same level we're going to be and no significant increase. We're about 17%. Cash at the holding company probably is insignificant. That's probably less than $10 million. We did dividend up this quarter $30 million. We did buy back some shares, I think 331 million shares this quarter. We're doing that out of cash

Thousand.

331,000, excuse me. We did that out of dividends out of the operating company and not any increases in debt. As a matter of fact, I think we took some debt down. So we're not taking up any debt positions going forward.

How much dividend is available for the remainder of the year and would you consider going for a special dividend.

We had a special dividend the first quarter of 120 some million, I think. Relative to going forward, I think that's a quarter to quarter decision.

Okay. Thanks.

Thank you. Our next question comes from Akiko Kokely from Endeavor Capital.

My follow up question has been answered, I think.

Thank you. Once again, ladies and gentlemen, if you have a question at this time please press the one key on your touchtone telephone. Our next question comes from Richard Diamond of Inwood Capital.

Good morning, gentlemen. Could you provide some more granularities with regard to the key economic statistics we should be watching. If it's the unemployment rate, for example, if that's the main one driving delinquency. What do you look at and I'd love to hear your thoughts on what an absolute level would be so that the cure rate starts improving and there's some stabilization there. So would unemployment have to go back to, you know, 5.5% to see an improvement? I guess if you could provide some boundaries on that.

Well, I don't think you can quantify it that easily. I wish you could. Relative to watching our company, obviously, from the demand side, mortgage originations, and then on the breakdown of those, whether it's purchase transactions or refinance, we get twice the penetration on purchase transactions as we do our refis. That will give you an idea relative to the business outlook, relative to the performance of those loans, again, the unemployment is very key. To the extent people are working, they are paying their bills. And when they are not, they have a hard time with it.

Although, the mortgage asset clearly is the item that is the most protected relative to the payment of their bills. But we can't quantify that, if it's at 6.4 versus 5.5, what that would mean to our delinquency inventory, other than it would improve. So we can give you trends and you can look at that to the extent employment improves on the delinquency side that will improve. But the quantification of that, we're not that smart.

Okay. But would it be fair to say, then, if unemployment dropped to let's say 5.9%, you'd see a dramatic pickup or dramatic drop in delinquency.

I don't think you'd see it in the short-term, longer-term, yes. If that happens relative to if it happens in the southeast versus the midwest. Again, while we are the market leader in 38 states and second in nine, so we have a broad diversification of our policies, we still have a disproportionate market share in the Midwest. And thank goodness, because ultimately, I think that will outperform. But right now we're going through a process where Ohio, Michigan, Wisconsin, Illinois, Indiana, because of the manufacturing in this sector is under stress. As a result, it's caused some increase in our numbers. So the point being to the extent delinquency or unemployment improves nationally, you have to look at the makeup of that. To the extent it happens in the Midwest, it will be much more favorable for us.

Thank you very much.

Thank you. There appear to be no further questions on the phone lines.

As always, thank you for your interest in our company. Good day.

Ladies and gentlemen, thank you for participating in today's program. This concludes the call. You may now disconnect