MGIC Investment Corp (MTG) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the fourth quarter earnings call. At this time, all participants in a listen-only mode. Later, we'll conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host today, Mike Zimmerman, Senior Vice President, Investor Relations.

Thank you. Good morning and thank you for joining us this morning and for your interest in MGIC Investment Corporation. Joining me on the call today to discuss the results for the fourth quarter of 2009 are Chairman and CEO, Curt Culver, Executive Vice President and CFO, Mike Lauer, and Executive Vice President of Risk Management, Larry Pierzchalski.

I wanted to remind all participants that our earnings release of this morning, which can be accessed our MGIC's web site located at MGIC.com under investor information, includes additional information about the Company's quarterly results that we will refer to during the call and includes certain non-GAAP financial measures. As we've indicated on this morning's press release, we've posted on our website supplemental information containing characteristics of our primary risk in force and new insurance risks, as well as other information we think you will find valuable.

During the course of this call, we may make comments about our expectations of the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about those factors that could cause actual results to differ materially from those discussed in the call are contained in the quarterly earnings release. The Company makes any forward-looking statements; we're not undertaking obligations to update the statements in the future in light of subsequent developments. Further, no interested party should rely on tha fact that such guidance or forward-looking statements are current at any time other than the time of this call or the issuance of the press release.

With that, I would like to turn the call over to Curt.

Thanks, Mike. Good morning.

In the fourth quarter, we reported net loss of $280.1 million with a diluted loss per share of $2.25. New insurance written in the quarter totaled $3 billion. Market share totaled 26.3% through November as December numbers are not yet available. Persistency was down slightly in the quarter to 84.7% from 85.2% last quarter, and with the lower volumes of new insurance written in and the slight drop in Persistency Insurance in Force fell to $212 billion from $217 billion last quarter and $227 billion a year ago. The Average Earned Premium Yield was 57 basis points, compared to 53.7 basis points last quarter. Underwriting Expenses totaled $56.2 million versus $59 million last quarter and $63.7 million a year ago. Cash and Investments at year end totaled $8.4 billion. Paid Claims in the quarter were $515 million compared to $417 million last quarter and $310 million a year ago. The average claim paid was $52,600 down slightly from $53,000 in the third quarter. For the year, we paid $1.7 billion compared to $1.4 billion in 2008.

In the fourth quarter, losses incurred were $881 million compared to $971 million last quarter with a loss reserve not totaling $6.7 billion. The Delinquency Notice Inventory totaled $250,440 at year end. Up from $235,610 last quarter and $182,188 a year ago. Total Primary and Pool Loss Mitigation savings for the quarter was $506 million of which $366 million were in recision slash denials down slightly from the third quarter total of $513 million of which $390 million were in recisions or denials. Total Loss Mitigation savings for 2009 was $1.7 billion compared to $621 million in 2008. The breakdown on the $1.7 billion mitigated this year was $1.2 billion in recision or denials of $400 million in loan modifications and $100 million in presales.

Loan modifications, including HAMP modifications, totaled $120 million in the fourth quarter. Compared to $105 million in the third. The increase in modifications of the fourth quarter was due to a significant increase in HAMP modifications, which totaled $63 million versus $13 million last quarter. Regarding HAMP, we have approximately 35,000 loans that have started the HAMP trial period since April., of which 2,500 have cured. Today, we have a 25% cure rate on the trial loans from April, May, and June. 10% of those loans have re-defaulted. Approximately 30,000 of the 35,000 loans in the trial period are in our delinquency inventory at year end. So, if this program gains more traction, it will have a positive impact on our financials.

Looking at next year, we're expecting the origination market to be down approximating $1.5 trillion versus $1.9 trillion in 2009, and our market share to be down somewhat reflecting a new entrant in our business as well as a loss of business from customers who have gone out of business, or where we have differences of opinion relative to business matters. In addition to the underwriting and pricing changes FHA recently announced, we do expect FHA to make more changes as the year progresses so the MI penetration of the general market could increase. The net result of our expectations is that New Insurance Written should be flat with 2009 and if FHA makes more changes, our volume should be higher. Claims paid should continue to increase each quarter from the fourth quarter levels. We expect the real estate markets to stabilize in 2010 and, as a result, our delinquency should moderate and there should be an inventory reduction at year end, 2010. Reflecting the significance fraud in the 2006 and 2007 books of business, recision activity will again be strong. A wild card will be loan modifications which could provide a significant benefit.

I also want to comment briefly on the lawsuit filed by Countrywide because this matter is in litigation, what I say will be limited, and during the Q&A, we will not take any questions beyond what I say. We removed this case to federal court in northern California from the San Francisco state court in which it was filed. During 2008 and 2009, there were about $100 million in recisions involving loans insured by Countrywide through our flow channel. The recision practices disputed by Countrywide are no different than our general recision practices. And we have not changed our general recision practices in response to the lawsuit.

Finally, concluding remarks, as those of you that have followed us over the past two and a half years are aware, our Company and our industry continue to deal with a very difficult housing market and a fragile overall economic environment. Since we cannot predict or control the future relative to jobs, housing policy or foreclosure avoidance programs, we are focusing on those items we can properly control namely expenses, underwriting criteria, and loss mitigation. In early 2008, we materially altered our underwriting guidelines with the goal of improving the credit profile of New Insurance Written, and you'll see evidence of that on page fifteen of the supplement. We also have material increase the resources assign to loss mitigation which reflects the numbers I talked about earlier and continue to run the Company as efficiently as possible. Overall, we believe that there is a role for private capital that provides credit protection to the residential housing market, and given the significant business issues at FHA, we believe this view is shared by a number of policy makers. As a result, despite the uncertain environment, we continue to believe that the strategy of internally capitalizing MIC best positions our Company for future opportunities by allowing us to write uninterrupted new business going forward.

With that, Operator, we'll take questions.

(Operator Instructions). We will pause for a moment while we compile the queue. Our first question comes from Donna Halverstadt with Goldman Sachs. Please go ahead.

Good morning, gentlemen.

Good morning, Donna.

A question with respect to the pending decision from Freddie on MIC. Were they just waiting to see year-end results or is there something else beyond year-end results that they're waiting for before communicating a decision? And assuming you get their approval, how long does it then take to get and/or update licenses in the jurisdictions where you'll need to do so?

Well, I would say from what we're aware, Freddie Mac has been discussing this as recently as this week. I think the discussions have been positive, relative to our Company. I think other companies have proposed similar structures. And so I'm -- we're expecting, soon, to hear from Freddie Mac. Regarding the implementation, I think we're shooting for April 1 relative to MIC being operational, Donna. So, relative to the effective states, we think we'll be operational April 1.

Ok.

Assuming everything goes with Freddie Mac.

Ok.

As we expect.

Ok. Another thing I wanted to ask about was the tax benefit, the $257 million that's mainly related to the extension of the ML carry back. At the end of the third quarter, you'd estimated $178 million. What drove the swing from $178 million to $257 million? Does that just mean your fourth quarter loss was greater than you'd previously estimated?

Yes.

And the other thing I wanted to ask about, in your third quarter 10-Q, you talked about how recidive any taxes recoverable could be delayed or subject to final settlement of open tax matters. How much of that $257 do you expect to get in cash and what's the time frame for finalizing other tax matters that may delay the recede of such?

The timing would be subject to the finalization of the tax issues and that's generally speaking, I.R.S. reviews take a long time. So, it has been a number of years. It may be longer.

So, you don't expect to get any tax until those other matters are settled?

That's correct.

Ok. And then one other thing I wanted to ask about. You commented that on December 1st, the GSEs changed the way they use the MVP test for HAMP and then you said that could materially decrease the number of loans that would participate in HAMP. What exactly was the change and what's your thought process there?

Donna, this is Mike Zimmerman. What Freddie and Fannie did was they implemented a threshold, so for GSE loans prior to December 1st, they had no -- they were running the MVP test from treasury, but there was no limit as to whether or not they would offer modification. They've instituted a $5,000 negative MPB, so it is greater than 5,000 negative, without their prior approval, they can't use a HAMP program, but they can use all of their other programs.

Ok. All right. And actually, one other question I wanted to ask. In terms of the Charter Min program, you comment about how if the lender switched to the charter coverage from the standard, that obviously impacts revenues, but then you also commented that you could experience other adverse effects. But what are the other adverse effects beyond reduced revenues and related implications?

I don't know what the other was when we commented.

Ok. I picked that up in your risk factors.

The charter level coverage aside from reducing in general, if you look at the execution, the loan's most likely to utilize charter would be the higher FICOs and the lower FICOs would still have a tendency to use standard. So, aside from the overall drop in revenues and what not, you get an adverse selection within the portfolio.

Ok. Great. Thank you very much.

Thanks, Donna.

Our next question comes from Mike Grasher.

Good morning, everyone.

Hi, Mike.

Question around the change in delinquency, just in terms of if there's any encouraging signs within the pool of delinquencies? Seems like the change actually slowed sequentially?

Well, the two things that drive the inventory are the new notices going in and the secure rate relative to the loans in the delinquency status. On the cure rate, the cure rate remains rather low, flat from levels earlier this year. So, we're not seeing improvement on the cure rate at this point. We're seeing is declines in the number of new notices. Most of that is in the newer books of business, the '07 books of business and mostly in the weaker markets and the higher risk product segments. So, California and Florida are dropping, new notice activities dropping, as well as all day an A minus. I think it is driven largely by -- called a burnout. New notice activity reached such high levels and now with the population decline, certainly, the current population decline, there's just not enough current loans remaining to fuel those high level of new notices so we're seeing declines in new notice activities from those most distressed geographies and product segments.

Let me just add that the increase in delinquencies in the quarter was about 15,000. In Florida was up only 1,400; in California only up 600. That is an indicator. If you recall, those two states were kicking off significant changes in delinquencies. It slowed, as Larry indicated, in those two markets principally.

Absolutely. And then Larry, you mentioned the '07 book slowing. How about '05, '06?

The '07 has shown a good rate of decline. The older books of business are showing rather flat to slight decline and that's really the issue; typically, you would see a steady rate of decline and because of the economy and home prices, the decline and new notice activity of older books is stubborn.

Ok. The older books then being -- simply the economy from this point. I mean the bad stuff, the fraud is extinguished or burnt out of those? Is that fair to say?

Well, I would say true.

Ok. And then the -- what can we read in -- the paid claims were up and we expect them to go higher but the average paid claims seem to be in decline. What can we read from that? Is it just more settlements or units there or is there something else?

Well, I think in overall, it is down because of the mix between bulk and flow. But if you look at flow, it is up sequentially every quarter. So, the flow book continues to increase and the severity increases and it is a combination again of getting to paid. It is a combination of those higher states, of Florida, California, et cetera, and the higher exposure. So, overall, the reason for the mitigation was the combination of bulk and flow, which bulk has been flattening out, but the increase on an individual basis is coming sequentially off of the flow book each quarter.

Ok. So, it is the mix.

Right.

Thank you very much.

Thanks.

Our next question comes from Steve Stelmach.

Hi, good morning.

Good morning.

Just real quick follow-up on the last line of questions and two others. On the delinquency notices, there's nothing in that number, the new delinquency notices, that is impacted either by service or delays or mod programs. Pretty clean number quarter over quarter, is that correct?

As far as we know, yes.

Ok. And then on the recision number, Curt, you mentioned the fact that you expect recisions to remain strong through much of 2010.

Yes.

How should I compare that to recision rates versus actual dollar amounts? Is it the rate of recision may be declining, but the actual dollar amounts could stay relatively robust because the shift from bulk to flow?

Relative to the rate, I think it might be slightly higher, and I think the dollar amount will be slightly higher or flat to higher. I mean we get a peek into that by looking at the finding letters that we send out in advance of determinations with the lenders. So, it gives you at least a three-month window on where recision activity is going and I think in both cases, it will be slightly higher than it has been currently.

Ok, great.

If I could go back to that question about the delinquency reporting, the only issue that we're aware of is a small one is with Taylor, Bean, Whitaker; they were taken over and, as a result, some of the servicing shifts, there's been a disruption in the normal month in, month out delinquency reporting. So, we've addressed that through IBNR. And hopefully in the next month or two, that's settled out.

But does the IBNR, that doesn't show up in the delinquency count, right?

No. So, the launch associated with those delinquencies has been covered via IBNR but the count as a result is with the servicing, might show up with our estimates maybe 1,000 or 2,000 increase here, whenever they get that sorted out here in the first quarter.

All right. So, not a huge number. But perhaps a little bit.

No. We're reserved for it.

Yes, yes. Then just the last question. You mention that you lost a little bit of business due to differences in business matters. Is that differences in underwriting opinion or is that pushback due to the recision issue?

All of the above but more the recision decisions.

Ok. Thanks. That's all I have.

our next question comes from Alex Bevelong.

Hey, guys, static pool analysis.

Thanks for your input in getting it there, Alex. I guess -- is that it?

Operator?

Our next question comes from Shawn Faurot.

Thanks, guys. Answered a lot of the questions already. Just had a question. Seems like you guys obviously plugged a little bit of the hole, buying back a few more Elevens this quarter from last quarter. Just wanted to get an updated thought on how you guys expect to close that hole, if you guys are still confident in the regulator allowing a dividend up if necessary, if you guys can't get external capital to plug that hole?

Again, we're talking about the October 2011. That remains as about $78 million and we currently have $84 million at the holding company. But not withstanding interest payments between today and that date, we would need to get additional funds and we believe we would be able to get some type of funds available to cover the remaining balance of that debt between now and that date to avoid any default issues.

You guys mentioned an inventory reduction by year end 2010. I assumed you were talking about delinquent inventory reduction?

Yes.

That followed through on what you were talking about the '07 book starting to tail off and hopefully the earlier books, the economy starting to come back, and getting the benefit from that. Is that why you're expecting that?

And the bulk.

Got you. And then the price increase from FHA, obviously, clearly, you guys were -- if I can say, way off on new insurance written this year, at the beginning of this year versus where you guys ended up, clearly, there were a lot of changes and everything else. Do you think that with the price increase from FHA, you said you expected to stay flat to 2009 and 2010? Clearly, that will be driven by MIC and the timing on that. Are you guys pretty confident you guys can keep it flat? We were expecting given a large sequential decline even in year-end 2008 in the fourth quarter that we would see a little bit better performance this year on new insurance?

I'm not sure what the question is.

I guess the question is do you feel confident you'll be flat for 2009? If FHA hadn't changed their pricing, do you think the you guys would have been flat or -- ?

I will tell you the FHA change that they made doesn't impact our volume. The change that they -- if it does, it is only minimally. We're expecting that they may make make other changes as the year progresses given the situation at FHA, but the 50 basis point increase and the front-end premium, I think, has a $5 impact on the borrower's payment. So, that doesn't make much of a difference.

Ok.

We're just expecting relative to the changes in other things that we can do here that we, throughout the year will be flat year over year; and if FHA makes more changes which I think they need to, to reflect the decrease in their surplus, that would even be better, obviously better for our industry and MGIC in particular.

Ok. You guys think you will be flat even with the current changes?

Yes.

Ok. Thanks. That's it. Thanks, guys.

Our next question comes from Matthew Howlett.

Thanks for taking my question. Just a clarification. On the forecast for a year ending delinquencies going down, is that from the third quarter 2010 or is that year over year?

Year over year.

Ok, great. Curt, on that note, you gave guidance at this time last year, saying you would not be profitable for all of 2009. What made you refrain from giving profitability guidance this time around?

[ LAUGHTER ] I don't remember doing that last year. And we've just gotten away from talking about our earnings. So, I don't remember doing it last year, but we certainly didn't do it throughout the year. We're not doing it now.

Ok. Fair enough. Then just moving back to the HAMP. You said 12% of the delinquencies are in trials. Do you have that percentage on just the flow delinquencies that are in trial?

I'm sorry, Matt, what was that again?

Do we have the flow in trial? The 35,000?

No.

Just on a flow ratio. I'm assuming it is a lot higher given the GSE.

About 70%, Matt, of our insurance and roughly the same percentage of our delinquent inventories are GSE loans. But we don't have a break between the two.

Got you. Then the last question. You said it could take you up to six months by the time a borrower started a trial to realize a cure, see a cure. On the HAMP, on the buyouts coming out of GSE side, why wouldn't you see it on the exact -- on the same month at which the buyout occurred?

Matt, this is Mike Zimmerman. There's a lot of reasons for that. One, probably first and foremost is the recording from the servicers. We're on a -- we get it on a delayed basis to us, as you know. Just because they're buying out of the pool doesn't mean they're beginning the modification to become permanent, so they could buy it out let's say in the month of December but not report it to us until January or February.

Got you. There just could be a couple of months.

We just don't -- we know that the reporting is not the most robust at this point in time on HAMP loans.

Great. Ok, great. Thanks, guys.

Thank you.

Our next question comes from Mike Grondahl.

Yes, two questions, guys. One, can you just handicap the HAMP program? Is it progressing as you expected? It seems a little slow, but it's picked up steam in the last month or two. Could you handicap that for us? And then secondly, when you're doing a fraud recision, I know you have to wait until you get a claim notice. Is there any way to expedite that and where you were able to do a recision earlier in the process to save all of that investigative work?

Mike, this is Mike Lauer. Let me take the first one apart, handicap and HAMP activity. As you've known in the treasury has put out a big push. There's more conversions taking place. Clearly, it is not -- to what the administration thought was going to happen of three or four million loans being saved. But I'll remind everybody that it was a monumental effort by servicers to refigure their systems, hire people, train, the documentation required, et cetera. So, we're seeing progress made.

We're also reading I think as everybody else is, reports from Treasury that they're looking at modifying it to try to streamline some of that documentation. That may accelerate the amount of permanent modifications that occur. But, it is all wait and see. So, yes, I think the expectations outside of our Company were much higher. I think from the administration and the public demand were much higher than what I think the mortgage industry, mortgage insurance industry would have expected.

Mike, let me follow up to that question quick. The 2400 or the 2500 that you guys said actually cured or went to permanent status, what benefit did you derive from that? Are we to assume that your average -- are we to assume that your average reserve, that was released or what happened with the 2400?

This is Mike Lauer again. Yeah, that particular case, those delinquencies would have cured and they would have come out of the reserve. So, that's a direct benefit to incurred losses for the month.

Great. Ok. That's what I thought but I just wanted to be sure. And then the question about fraud recisions and waiting for a claim notice?

Yeah. I mean, actually, we're doing a pilot on that right now, Mike. But I -- the thing that we're finding is that -- we have baked into our numbers what we think the ultimate recision rates are. So, it is not going to have a -- the current recision rate and so it doesn't have a significant benefit there by doing them earlier, but we -- looking at it, we don't save any dollars relative to investigations. In fact, we incur more because we have to hire more people, or outsource it, which some of our competitors have done. So, you actually incur a lot more costs in doing it earlier. So, we're looking at the financial benefit of doing it. The only thing you do gain, and we don't know how much it is by going earlier, is "do you get better information from the borrower that might be lost if you waited until the claim?" So, we're going through that work right now to see the financial benefit of doing it earlier.

Ok. Great. Thank you.

Yep.

Our next question comes from Nat Otis.

Good morning, gentlemen.

Good morning.

Most questions have been answered. Just one quick follow-up on -- with Bank of America. I know you can't comment on the lawsuit, but just any thoughts or commentary on any possible impact for other lenders who could possibly come out and do something similar to what Bank of America has done. Is that a concern? Is that something you're watching? You don't have any concerns about it? Just a little commentary there if possible.

As I said, we weren't going to comment further on that situation. So, let's leave it at that.

All right. Fair enough. I guess then only other question has to do from a tax standpoint. Going forward, should we just expect that taxes go back to really no impact on the income statement?

That's correct for 2010.

Ok. Fair enough. Thank you.

Yes.

Our next question comes from Mahmoud Reza.

Good morning.

Good morning.

Two, actually three little questions. The first one is, you said that 70% of your loans are GSE loans. Does that number change given -- ?

That's in the HAMP.

No. In general.

That's overall.

Right. Given the change in their MBP test, does that reduce that percentage as to what's eligible for HAMP or no?

We're not saying that's what's eligible. Of our 250,000 delinquent roll loans, roughly 70% of those are GSE loans. The eligibility criteria that treasury publishes is so broad, we don't think it is a good measure. They're looking at owner occupancy. Some things of origination, but not current income or any other factor. 70% doesn't apply to qualification for HAMP.

Got it.

If it is too early to tell as the change just took place. These will be very early. Again because of the spotty reporting. We don't have a good handle on that.

One minor housekeeping item on recisions, given that we wait for the actual notice of foreclosure to do the investigation, the premiums when you pay them back, when you actually do a recision, presumably, you still get to keep the investment income earned, right?

Yes.

Ok. And final question is you guys gave us the -- I guess the roll forward of the delinquency pool which is very helpful. Thank you for that. Any chance on getting a view on how it has been trending in the first month of the year?

No.

Again, we just start getting that information late in the month from servicers so that's all being processed.

Ok, so you're not even going to know that by now. Ok, thank you.

Our next question comes from Sam Martini.

Guys, good morning.

Good morning.

Just had a quick question for you. I apologize if these numbers aren't perfect, but I had written down somewhere, which certainly shouldn't be confused with it being accurate, but I had written down that Arizona, Nevada, and California loans are about 30%, 50% to 100% on average of your average loan size. Is that directionally right?

About a 30% to 50% higher than our average?

30, 50 and 100 for Arizona, Nevada, and California on average, the average loan size in those states versus the average loan size of your insurance reports.

I think round -- I think our California was around in the mid 200s. That sounds directionally right.

Ok, fine. Rather than get into specifics, you said California, new notices are falling. You've had a flat reserve of about $26,000 per notice of default, per net notice of default, not the net new but the total defaulted inventory, the changes, about $26,000 for the last six, seven quarters. And California, if we say California is at $250,000, $290,000 loan and those are coming off and slowing meaningfully as part of this net new default line item that you gave us, clearly, your peers who are averaging $15,000 to $21,000, $22,000 to default are meaningfully lower. Don't have to tell what you 1,000 times 250,000 is. What is making you keep your reserves so high relative to everyone else? Especially when the state that's producing the highest loans would probably -- highest dollar size loans with extraordinary, from what we can understand, fraud frequency and a propensity to default, what's keeping that notice of -- that notice of reserve per new default constant? And what would cause you to lower it?

First of all, this is Mike Lauer. First of all, I can't comment on the others and what their averages are. Let's just talk through some of the changes. First of all, I didn't say I don't think that California was going down. It said it went up less than it had been going up. So, for California delinquencies, year-to-year were up 4,700. Only up 600 for the quarter. 578, as a matter of fact.

I was just pointing out that as a contributor to this net new notice, this new line item that you gave us, that their contribution is falling meaningfully.

Ok. Let me continue though. So, we do have a significant increase in delinquencies, you recall year-to-year. And in conjunction with that, as we outline and gave you some additional information, you can see that the cures have been trending down. So, we have a number of factors, first of all, a significant increase in overall delinquencies going up. We have a decrease in, if you will, a cure rate throughout the year. That generates a higher claim rate, mitigated by increase, if you will, in recision factors. So, looking at our reserves, that's how I go through the analysis and look at where we arrive at relative to a reserve on a case-by-case basis. I can't really comment on the differences between us and others.

So, Mike, just -- using your numbers, you said the new delinquencies in the quarter about 61,000. I would have to assume that the percentage of that 61,000 new notices that are California are lower today than they were a year ago when it was 76,000 which, to me, if that loan is two times the average size, would say that there should be some incremental consideration of what's a reasonable reserve to put aside for this total new bucket. Is that just --

Well, California was up, as I said, 5,000 year-to-year and Florida was up 10,000. So, those are still mitigating -- actual numbers. Year-to-year, Florida delinquencies up almost 10,000 and California, 5,000. So, that is a negative, if you will, year-to-year.

Of what base?

As is an accelerating claim rate on flow, again mitigated by increased recisions. So, that gets you to where we it would be flat. In other words, had it not been for recisions, the increase in delinquencies, the higher exposure and increased claim rates, the reserves would have been higher, is another way to think about it.

You gave us the change, Mike. What's the base that California's loans are? What's the percentage contribution to this quarter? How many of this quarter's were California versus how many of a year ago's quarters were California, percentage-wise?

Someone got a calculator? I don't have it in front of me. I just know that what was the change a year ago? I don't know.

Mike, maybe you and I can follow up on it off-line.

Let's do that. You and I and Mike can go through the numbers and talk through. Because we do have that information in the Qs. So, it is not anything that we haven't already disclosed, but I don't have it readily available.

Thank you, guys.

Thanks, Sam.

Our next question comes from Chris Owens.

Hi, guys. Good morning.

Hi.

I just wanted to follow up on a comment you made earlier in the introduction of the conference call. You said that 35,000 HAMP modifications were either in or had been in modification form. And that it seems like as of your most recent filing, 29,700 are still being under the modification process. So, basically, it seems like 5.3 thousand have either been cured or re-defaulted. You said 2,400 have cured. So, that would imply that 45% are curing. 55% are re-defaulting. Is that an accurate sense of how you see that progressing?

5,000 that are no longer -- 5,000, not all of those were necessarily delinquent. Right? Because of the eminent default in 30 day delinquents as well.

Ok.

That's part of that difference. It is not all of it but that's certainly part of it.

Can you just go over that again? If you had 35,000 at one point in HAMP, and then you have 29,700 in HAMP today, what cured, what re-defaulted, and can you just explain to me what you're seeing the percentage is between cures and re-defaults?

You've got 35 trial cases started. 30,000 are roughly still there. So, the 5,000, 2,500 or half of that 5,000 cured. And you've got about 2,500 that fell off or are back in because of re-defaulted, but that re-default is probably back in that 30,000 number. So, roughly, you've got 25 that cured. And then you've got 25 that terminated the program for whatever reason. Because either they missed a payment or didn't follow through on docs, although I think they gave them extra time on that. So, 35 goes in. 30,000 still sitting there. 2,500 cure. 2,500 fell off for various reasons.

Whatever reasons.

So, it is about 50/50.

Yes.

Would that be a fair way to look at it?

Yes. But once again, this thing has been ramping up. You have to really associate the cures to the time period of when the trial started. That goes back to Curt's earlier comment. We're attaching those cures to the time periods, the April, May, June and so you know, we had roughly I think 10,000 loans in those three months, 2,500 or 25% have cured. So, you have to put the cures back to the time line where the trial started.

Sure. That leads me to my next question. You said you expect the delinquent inventory to start declining around year end, 2010. I think as of last quarter, you had 14,500 trial mods.

Ok.

So, just running this through, and keeping in mind that Q1 is a seasonally beneficial. If you just cure 50% of those -- of those mods that you had in Q3, giving them six months, and you have this seasonally beneficial quarter and Q1, how is that delinquent pool not going to start going down before the end of 2010?

What we said is the delinquency inventory would be lower at year end than it is now.

Not beginning to --

We didn't say when. You would see that. We said year end -- a year in now, it will be lower than it is today.

Ok.

Also, I would just caution everybody to extrapolate the numbers from these very early cures or modifications from April, may and June to the cure activity, pretty small sample size. I think it is fairly risky to be extrapolating that into the future. I think more time needs to take place and more data be reported out from both Treasury and from servicers to us.

Thank you very much.

Yes.

Our next question comes from Jacob Mueller.

Good morning.

Good morning.

When you look at your cures for the last year, how many of them would you say were due to modification as a percentage of the whole? How many were natural cures?

For the year, we had modifications, we had 388 million. Is that right, Mike?

Correct.

Plus another 76. Yes, I'm talking about -- so, what we had, like 400 million in modifications for the year. Sorry, I don't remember what the question was, now.

I would say, the question is of the roughly 130,000 cures, what percentage of those were mods, roughly 10%.

Oh.

So, the other 90% were just curing through the regular typical cure process.

That's correct. Yes.

And when you broke down the HAMP period between April and June, you basically said that around 2.5 thousand were cured and another 2.5 thousand went by the wayside. Now, we're at least six months past that period and the HAMP, the trial period at longest is perhaps five months. So, where is the rest of that inventory right now? As far as your understanding? What happened to those?

We don't know what status it is in. I mean the servicers have been -- had a difficult time with this program and so we're not sure where the status is on those remaining 30,000 loans.

Thank you very much.

Yes.

Our next question comes from Jordan Hymowitz.

Thanks, guys. Question. If you hadn't had a tax refund, what would the risk of cap have been at the end of the quarter?

Say it again.

If you hadn't had the tax refund, what would the risk of capital have been at the end of the quarter?

A couple hundred million dollar impact on risk to capital, that question?

Yeah.

What's your next question? We'll have someone calculate it.

Everything else is basically been answered.

$200 million.

Can we take the next question. While we calculate it out.

We'll take it off the call, Jordan.

Ok, thank you.

Our next question comes from Beth Malone.

Ok, thank you. Good morning.

Good morning.

Could you just talk a little bit about the recision environment. Has it surprised you, the amount of recisions you've ended up doing? Have you changed your strategy regarding those recisions or is this just the natural progression of the kind of market that we're in?

Well, it is reflective of the 2006 and 2007 books of business. And so am I surprised? Yes. At the level of recision and fraud that's being found and I mean that's consistent across all of the companies in our industry, too. So, I guess it is indicative of when you're in boom periods, things happen like this.

Have you become like more aggressive than you might have been historically on this or is this the markets driving this?

The market is driving this.

And do you see --

We're consistent on our application of the policy over years and years. It is just the 2006 and 2007 books with the various dated income and the various alternative documentation programs and unfortunately, there was a lot of fraud prevalent in those books of business. Once again, I say not only our Company but others are finding at the same level.

So, should we assume that recisions are going to trail off over time.

Yes.

Because as they mature.

Yes. I would say there still was probably a significant level early in '08 but after that period of time, since then, as shown by the credit quality of what we're insuring, it should tail off rather quickly.

Ok. All right, well, thank you.

Yes.

Our next question comes from Brian Horey.

Hi, just one follow-up question on the HAMP modifications. You said 2,500 to cure and there was a 10% redefault rate. Is that 250 of those 2,500 have in turn re-defaulted. Is that the right calculation?

I believe so.

Yes, it is.

Ok. Thanks for the clarification.

Yes.

Jordan, on your question on the risk to capital, the equity would have been down about $220 million. And risk to capital would have been about 22 to one versus the 19 four to one.

Next question is a follow-up from Steve Stelmach.

Thanks, guys. My follow-up has been answered. Thanks.

Ok, Steve.

Our next question is a follow-up from Donna Halverstadt.

Just wanted to quickly ask about the move of certain markets off of your restricted markets list, moved from other markets from tier two to tier one. Can you tell us exactly how many markets moved categories, whether or not you expect that trend to continue and whether or not those moves are key factors in your being able to keep your NIW flat year-over-year?

I think in the fourth quarter, we moved seven markets from restricted to unrestricted status. And each quarter and we're in the midst of it right now, we update all of the analysis performance and economics and conduct another review and we're in the middle of that and I would guess in the coming month here or so, we've probably -- we probably have a move from another group of markets from restricted to unrestricted. So, it is a quarterly process and we're in the midst of it, and it is based on performance and economic data.

And how finely do you define market?

CBSA.

Ok. Thank you.

Thanks, Donna.

I'm not showing any other questions at this time. I'll turn it back over to you for closing comments.

Ok. Thank you all for your interest in our Company. And have a wonderful day. Thank you.

Thank you. Ladies and gentlemen, thank you for your participation on today's conference. This does conclude the conference, You may now disconnect. Good day.