MGIC Investment Corp (MTG) 2014 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the MGIC Investment Corporation first-quarter earnings conference call.

(Operator Instructions)

As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference call, Mr. Mike Zimmerman. You may begin, sir.

Thanks, Kevin. 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 first quarter of 2014 are Chairman and CEO, Curt Culver, President and COO, Pat Sinks, Chief Financial Officer, Tim Mattke, and Executive Vice President of Risk Management, Larry Pierzchalski.

I would like to remind all participants that our earnings release of this morning, which may be accessed on our website which is located at mtg.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 have indicated in this morning's press release that we have posted on our website, the supplemental information containing characteristics of our primary risk in force and new insurance written, which we think you will find valuable.

During the course of this call, we may make comments on 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 on the call are contained in the form 8-K that was filed earlier this morning.

If the Company makes any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments. Further, no interested party should rely on the 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 8-K. With that, let me turn the call over to Curt.

Thank you Mike, and good morning. In the first quarter we recorded net income of $60 million, or $0.15 a share on a diluted basis. This marks the highest level of quarterly profitability since 2007. The positive quarterly financial results were driven primarily by the low level of incurred losses, which totaled $122.6 million, and are down 37% from last quarter and 54% from the first quarter of last year.

As usual, there are multiple influences that are on the incurred losses. First, [we] received 9% fewer notices this quarter than we did in the fourth quarter, and 16% fewer than the same period last year. Second, historically, the first quarter has always been a strong quarter from a credit perspective as there is a higher cure rate on notices received during the first quarter versus other quarters, which was the case again for us this year. Finally, during the quarter, we continued to see improvement in the cure rate on previously-received delinquencies.

Fewer new notices received, combined with a lower claim rate on both new and recently received notices, resulted in a lower level of incurred losses. We believe that the improvement in the cure rate is a result of the positive housing trends and slowly improving employment.

Further contributing to the improved credit profile is the fact that approximately 60% of the in-force book was written since 2009, or took advantage of HARP and is generating very little delinquent activity. The delinquent inventory ended the quarter at 91,842 units, which is down 27% year over year and down 11% sequentially. After [consenting] claims paid, we expect the inventory to continue to decline in 2014.

Reflecting the overall origination market during the quarter, our refinance volume totaled 15% of new writings versus 46% in the first quarter of last year, and comprises approximately 15% of our current application pipeline. And while 30-year mortgage rates have risen, they remain very affordable, and as a result the purchase market remains relatively healthy.

Since the beginning of the year our purchase application volume is approximately 20% to 25% higher than for the same period last year, while refinance applications are off nearly 70%. New business writings are typically slow in the first quarter; this year was no different.

Not only was the overall mortgage market impacted by fewer refinance transactions, but I'm sure our winter had some impact on purchase volume also. However, I think the purchase volume is business deferred to later quarters and not forgone.

In the quarter we wrote $5.2 billion of new business, which was down approximately 20% when compared to the first quarter of 2013, with the annual decline due solely to a decrease in refinanced transactions. While we would all like more new insurance written versus less, especially given the credit cycle we are in, the fact of the matter is that a difference of 5% to 10% new insurance written does not materially impact our insurance in force and associated premiums in any given year, especially when these same market conditions improve persistency of existing policies.

For example, we wrote nearly $30 billion of new insurance in 2013, and if we were to write 5% less this year it would result in $1.5 billion less insurance in force. However, 100 basis points improvement in persistency, on the other hand, is the equivalent of adding approximately $1.6 billion to insurance in force. In this quarter, the annual persistency has improved 160 basis points to 81.1%.

After considering the influence of fewer refinance transactions and the impact that weather had on purchase activity, we view this slowdown as seasonal versus a fundamental shift in demand for housing. As a result, I remain optimistic that the demand for home purchases will continue to recover as household formations return to their historical levels.

And as the economy continues to improve, consumers will have more confidence in their future employment and their ability to afford and finance a home. Since a majority of purchasers that need a mortgage do not have a 20% down payment, we have a significant opportunity in front of us.

Our optimism is further strengthened by the fact that our industry continues to regain share of the low down-payment market, from the FHA reflecting the better value we offer borrowers. While first quarter numbers are not yet available, we estimate that our industry's market share in the fourth quarter was approximately 14% of the overall market, and we expect that this year will grow to 16% during 2014 compared to 11% for 2013. And while only one other company in our industry has reported its new business writings to date, we believe that within our industry MGIC's first-quarter market share has risen to be in the 18% to 18.5% range.

Insurance in force totaled $157.9 billion at the end of the quarter, down marginally from year end with approximately 56% included in reinsurance transactions, with a substantial majority of that being covered by the reinsurance transactions that were effective last year. In the quarter, all reinsurance transactions, including captives, reduced net premiums earned by approximately $25 million, operating expenses by approximately $9 million, which reflects our seating commission, and losses incurred by approximately $6 million. The bottom line, the net impact in the quarter was approximately $10 million, in line with our original expectations.

Paid claims in the first quarter were $343 million, down 27% from the same period last year and down 29% from last quarter, which included $105 million associated with the implementation of a rescission settlement agreement with Countrywide on GSE loans. Claims received in the quarter continued to decline and were down 29% from the same period last year and down 11% quarter to quarter. Given the claim filing patterns we are experiencing, we continue to expect paid losses to be lower this year than last.

At quarter end, cash and investments totaled $5.1 billion, including $542 million of cash and investments at the holding company. During the quarter we purchased approximately $21 million of the 2015 senior notes at a cost close to par, which saves us approximately $1 million through maturity. As a reminder, our total annual interest expense is approximately $66 million, and our next scheduled debt maturity is $62 million due in November 2015.

Now, let me take a couple of moments to discuss the regulatory environment. First, we continue to await the publication of the Revised Mortgage Insurer Eligibility standards, including new financial requirements from the FHFA and the GSEs.

The Revised Eligibility Requirements could be issued as early as this quarter. However, the timing of their release and the specifics of what is included and the implementation time frames still remain unknown at this time. So while we do not have any specifics to share, we remain confident that MGIC has a number of options available to comply once the standards are published and effective.

The NAIC review of capital standards which the insurance -- which the Wisconsin Insurance Regulator is leading also continues to move forward, although we are not aware of a time frame for adoption of final language, which will then need to be adopted by each state. The debate over the role of FHA and the GSEs in the housing market continued during the during the quarter.

Most recently Senators Johnson and Crapo have presented a draft bill to address conventional housing finance market reform. I label it that way as it is not a comprehensive housing policy bill as it does not address the role of FHA. Regardless, the draft bill is scheduled for markup in the Senate Banking Committee later this month. And while it may pass out of Committee, which is no sure thing by the way, with elections looming this year, we do not expect any definitive action in 2014, just more discussions as opinions on this topic remain as divided as ever.

Importantly, we continue to see and hear that in the various scenarios we are aware of, there is a significant role for private mortgage insurance. For example, in Johnson-Crapo, there is an explicit provision that calls for a loan in excess of 80% loan-to-value to have credit enhancements such as mortgage insurance or alternatives that meet similar capital and reserving standards.

In closing, during the quarter we made excellent progress on the path toward sustained profitability. We wrote $5.2 billion of high-quality business, the level of delinquencies and claim payments continued to fall, MGIC's risk-to-capital ratio improved to 15.3 to 1, and we maintained our traditional low expense ratio. As a result, I feel our Company is in an excellent position to take advantage of the housing recovery and the many opportunities provided to us. And we are committed to maximizing those opportunities.

With that, operator, let's take questions.

(Operator Instructions)

Our first question comes from Bose George with KBW.

Hi, guys. Good morning.

Good morning.

First just wanted to ask about the benefit that your losses incurred number got from the lower claims on the existing delinquencies? Just trying to break out what is being driven just by the new notices.

Yes, it's Tim speaking. I guess the way I look at it is, what do we put on for the new notices coming in the door? As Curt mentioned, the first quarter is traditionally good seasonally from a credit performance standpoint, both in terms of number of new notices, but also the intra-period cures.

So from that perspective, think of it, I guess, in terms it is going to be a little bit better as far as the average reserves that we are adding on than it would be the rest of the year. And then from the already existing delinquencies, I would say we had improvement on those, probably somewhere in the $30 million range.

Okay, perfect. Thanks. Then in terms of the claim rate that you're assuming on new delinquencies, where is that running?

Well, we have been seeing last year that it was running slightly better than sort of a 80% ultimate cure rate. I would say in the first quarter it is a little bit better than that, whether that -- but that would just be a seasonal adjustment. Whether it continues to improve through the rest of the year, we would have to see more information as we go through the second quarter and the third quarter.

Great, thanks. And then actually one last one just on the convert. Just wanted to understand what triggered the conversion prior to March 31. Going forward does it have to stay above that $9.03 in order for it to remain in the share count?

It is really a matter -- it was in the share count based upon that it is dilutive. The accounting guidance on it isn't real explicit, but it is dilutive. If you look at it in the fact that they could convert starting basically March 31, we thought it was appropriate to put in.

As far as where the stock price has to be, that really doesn't factor into it. It is going through and looking at the most dilutive convertibles, figuring out if that would dilute our basic earnings per share. And then if it is dilutive, do you put those into the calculation?

Okay, great. Actually just one last thing on that. But the interest expense doesn't come out. So going forward, this stays in the share count, but does your interest expense continue to be at that run rate as well?

Bose, if you're talking about on the P&L, yes, for the diluted EPS (inaudible) for the diluted EPS calculation, obviously you take it out, but for the face of the financials to get to the number, the dollars (inaudible), that would stay in.

Okay, great. Thanks a lot.

Our next question comes from Jack Micenko with SIG.

Good morning, thanks. Looking at the early stage tiers in the supplement, it looks like your early stage tier rate jumped pretty meaningfully this quarter versus fourth compared to last year. That seems to me like it is a bit more than seasonality.

Can you talk about what is happening there? Is that just better housing market overall? Is there other that you're noticing in the portfolio in the early stage?

This is Larry Pierzchalski. The first quarter is a seasonal friendly quarter, and we see a pretty good jump in cure rates on new notices received in the last few months as well as a drop in new notices. At seasonality, level of seasonality isn't perfect.

I guess we would like to believe that is a permanent fundamental shift, but at this point we think it just might be justly a high seasonal impact here in the first quarter. And that's why Tim mentioned we will have to wait to see what happens in second and third quarters to see if that remains or drops back to more normal levels.

Okay. Then to quantify that differential on the loss incurred, that's for the $30 million number, correct?

Yes, it's a $30 million as far as positive development on already existing notices, somewhere in that range.

Okay. The average flow claim has been coming down on a dollar basis nicely. And Curt talked about claims lower this year than last. Where can that number go, and is that curtailment or is that home price appreciation? Is it both?

I think part of it is geography. The higher-cost states had a pretty significant decline in home prices, and as a result, we saw a lot of claims from the high-cost areas for quite a while. That's diminishing.

From a policy-year basis, the 2006 and 2007 are coming down more so over time. And then the last point, like you say, or mentioned, our ability to mitigate the loss, we're starting to acquire a tad bit more properties in lieu of paying a percentage option. So it is a number of factors, I guess, but the trend through time should point down as all those things play through.

Yes, we should have -- continue to increase in relative to mitigation opportunities, whether it is short sales, or buying the properties, or whatever. So that all will be very positive longer term.

Okay, great. And then just real quick, do you have any sense that the state regulators have gotten draft rules yet?

Jack, this is Mike. Given that we think it could happen as early as this year, it is only logical to assume that they have. Whether they all have or not, we don't know.

Okay.

But given that we think it could happen as early as this quarter, it would make sense that they do have them.

Okay, got it. Yes, I want to make sure I interpreted that right. Okay, thanks, guys.

Thank you.

Our next question comes from Eric Beardsley with Goldman Sachs.

Hi, thank you. You talked about purchase applications being up 20% to 25% versus last year. Are you seeing that come through NIW, or do you actually have purchase NIW up that much?

Yes. I mean, when you look at, yes, I mean the application volume, certainly translate over to NIW. There is a lag of anywhere from one to two months, depending on -- some converts in the same month of the application, the majority converts in the second month, and a little trailing after that. But absolutely.

Got it. I know it is relatively early in the second quarter here, but what type of trends have you seen in April thus far?

Pat?

We have seen applications --

Let me call Pat Sinks.

I'm sorry, Pat Sink speaking. We have seen application volume pick up. Our sense as we are talking to lenders and our customers that we are seeing more volume. So it is moving in the right direction.

Okay, great. Thank you.

Our next question comes from Mark DeVries with Barclays.

Yes, thanks. First question, where do you think the persistency rate can go from here? Is there a ceiling on how high that can get with re-fi already at really low levels?

Mark, this is Mike. You expect it to drift up. We still have some effect from the 2009, 2010, 2011 book. So as we move through the year, you're going to see it presented as an annual persistency calculation. It just keeps ticking up.

Is there a ceiling? It should go higher. I mean, does it get above 90%? Certain book years could. But on an overall portfolio basis, that would seem difficult to be able to do that.

Okay. What are the primary sources of laps in a quarter like this where you had very low re-fi activity?

Well, still the majority of it, there are cancellations -- I mean the re-fi activity, there are some voluntary cancellations, (inaudible) obviously are included in that as well. I don't have the exact mix along the way, but it is predominantly, I will say, voluntarily terminations versus involuntarily terminations.

Most of the persistency improvement came from the 2009, 2010, and 2011 books of business. And just think about it. The interest rate, those books of business took advantage of the rate drop.

They were originated in 4.5% to 5% range back in 2009, 2010, 2011. Rates fell to 3.5%, 3.75%. Now rates being closer to 4.5%, that is kind of shutting down that refinance window. But that's where the persistency improvement has come from.

The other books haven't exhibited that much change in persistency. It is 2009, 2010, and 2011, largely due to the rates. How much more? A few more ticks, hopefully, more than that, but I don't think we would get anywhere close to 90%, maybe mid-80%s would be a reasonable area to be thinking.

That's helpful. Could you talk about what, if anything, you've heard about the possibility that FHA Director Watt may look to lower loan level pricing adjustments, and what type of boost to market share related to FHA you could expect if we get that?

This is Pat Sinks speaking again. We have not heard anything specific. We have had an opportunity to meet with Mr. Watt through our the trade association, the USMI. I know, as he conveyed to us, he had spent the first couple months of his tenure just trying to get his feet on the ground, and he is just now starting to take meetings.

While we had good introductory meeting, we haven't heard anything specific. So I really can't comment on what might happen.

Got it. Thank you.

Our next question comes from Seth Glasser with Decade Capital.

Thanks for taking my question this morning. I thought it was good to put the NIW, the potential drop in NIW volume, in the context of that 5% decline, and what you actually gain in essentially effective NIW on the other side from the increase in persistency. Because I think that that is a point that, despite the fact that you guys have continued to make that point, I think it is a point that the market doesn't really fully understand. So I like the way you guys framed that out this quarter.

I guess my question is, when you look at NIW trends over the past few years, clearly, Q2 and Q3 are your seasonal peak. And last year from March through October your NIW in that period accounted for about three-quarters of your annual NIW.

So I guess the question is, going into that peak period, what can we expect for NIW trends this year, especially relative to the same months last year? Even with the weak start to the year, is it possible that NIW actually won't shrink from the 2013 level?

I'm still optimistic we will hit or exceed the 2013 level. I mean, the first quarter, who knows how much it was impacted by the winter that the whole country experienced? So that certainly played a role. We are going to regain more share from FHA, so that also will be positive. So I'm still optimistic that we will indeed be at or above last year's volume numbers.

So I mean if that's the case, given that the first few months of this year were down pretty materially from last year, then I mean, as you start to go through kind of this peak seasonal period, these year-over-year monthly numbers should actually start to be higher this year than where they were last year in terms of NIW? Is that how you're thinking about it?

They certainly will be comparable to it, and I hope higher than. I mean, we are seeing, as Pat mentioned, more lender activity, contract underwriters and other situations reflecting on volume pickup. And again, as I mentioned in my comments, the volume that I think we missed in the first quarter and probably the fourth quarter because of the winter periods is not business that is forgone, it is business that is deferred.

So I think a lot of that will happen in the second and third quarters. And throughout that, we should continue to pick up, and I think strongly from the FHA program. So my whole -- the thing that we need to happen more is just more confidence in the economy and jobs.

Right, right. So I mean, essentially modeling your numbers out, assuming flat NIW for 2014 you think is a reasonable assumption?

Yes.

Okay. Great. Thanks, guys.

Thank you.

Our next question comes from Chris Gamaitoni with Autonomous Research.

Good morning, guys.

Good morning.

I guess the two questions I have is first, you said last year that the ultimate claim cure rate for notice is assumed to be about 80%. How does that compare historically if we look at, say, like the 1990s or early 2000s pre-crisis? Where was that level?

This is Larry Pierzchalski. The old norm, good times, reasonable price appreciation, 3%, 4% per annum. It would be basically a 90/10 split. 90% of the new notices come in at the door would cure. Ultimately 10% would go to claim. And some of the high appreciation markets probably push 95%/5%. So I think the long-term expectation should be around 90/10 split.

Okay, great. And at what point do you start kind of changing that? If I look at the new notices that were previously delinquent, it was 83% for the quarter versus 78% a year ago. So it looks a lot of the new notices coming in had previously been delinquent and showed at least a propensity to cure in the past.

I mean, certainly the number is higher. I mean it was, as Tim mentioned, higher than the 80%, in this quarter. I guess we're just tempering things somewhat by, as we probably -- I think we did last year, when a [doc] would say, this is the first quarter and we need more to play out before you make your call for victory there.

But clearly, the number is higher. And frankly, it was a little higher than we expected. So we hope this trend continues as strongly as we saw it in the first quarter.

Great. And then could you talk a little bit about, you picked up market share, it looks like, the past two quarters. Could you talk about maybe the underlying dynamics of whether it is customer difference, the difference between singles and monthlies, compared to the re-fi cycle? Or is it purchase, better penetration, whatever it may be?

I will offer my perspective, and then Pat if he has other. I would say, in particular it was the strength of the purchase market. The single-premium product that two of our competitors dominated plays really well in a refinance market, and not as well in a purchase money market. So I think the mix of how the business is coming in plays better for our market share.

I would add to what Curt said about mix a couple of factors. First of all, I think the steps we took from a capital perspective in 2013 strengthening our position, took that issue off the table relative to customers. In addition to that, we are very competitive in terms of pricing and guidelines.

And then the third element is, quite frankly, we've got the most tenured organization in the business and they're outstanding in what we do. And by alleviating the capital situation and making sure we're competitive with pricing and guidelines, they're out there selling hard.

Thank you so much.

Our next question comes from Geoffrey Dunn with Dowling and Partners.

Thanks. Good morning. First as a follow-up to that last question, you're putting on share without being back in the B of A rotation, if I read is still correct.

That's correct.

What do you need to do to get back into the B of A rotation? Do you need to settle the non-conventional aspect of that agreement? Why aren't you back in? And what needs to change?

This is Pat. I can't comment on what they might decide, but I can tell you that the litigation that we're working on, the remains of it, do have an influence on the relationship.

So we're working on those changes. I mean B of A doesn't have the influence that it did at the time this all kicked out way back when, but still a good organization and one that needs to be an MGIC customer again. And so, Geoff, we're working hard on putting some of those things to bed. And then we think we have a clear discussion with them relative to the value added by MGIC being their partner.

Okay. Looking at the top line, your net premium earned rate came in about 54 basis points. Do you have the specific gross earned premium rate this quarter before profit commission and fee-to-commissions -- or, excuse me, the premium?

I don't have it right in front of me, but my recollection I think it is probably 2 to 3 points higher than that before the premium fees.

Then the last thing, you mentioned severity and the expectation that as you continue to improve this product and geography shift. I think last year we saw maybe a couple thousand dollars of average severity improvement result in the third quarter reserve development.

Are we looking for the same kind of sensitivity, such that if we see that come down to $44,000, $43,000, that is the level where maybe we see another revision to your assumptions and further possible development? Is that the type of sensitivity we should be thinking about?

I think you have to see it sustained. We've always talked about that the severity is somewhat volatile, it can jump around from quarter to quarter. So if you look at the first quarter average pace compared to even the third quarter of last year, they're pretty similar.

It is down from the fourth quarter, though. We want to see that continue to come down over time, but we if do continue to see the average paid number come down, that is probably better than what our expectations are currently.

Okay. Great. Thank you, guys. Take care.

Thank you.

Our next question comes from Christine Worley with JMP Securities.

Hi. Most of my questions have been answered. Just a quick one. So assuming flat NIW with 2013. Would that insume a consistent market share with what we saw in the first quarter, or what are your expectations around that?

Well, my expectations of Pat is that we will continue to grow market share. (Laughter) So that will be part of the bonus conversation. So no, I mean, our expectations are for higher market share.

So again, back to my comments, it was I'm still optimistic for exceeding last year's volume numbers. But it would be a combination I guess of a continued increase in market share along with the industry market share pick-up relative to FHA playing a role in the volume numbers we're looking at.

Okay. Thank you.

Our next question comes from Amy DeBone with Compass Point Research.

Hi. Thank you for taking our questions. So can you give an update on the pricing environment? We talked about market share gains, and it looks like market share has stabilized. Pricing appears to be stabilized also, but can you just give an update on the competitive environment?

I'm not aware of any pricing changes. Pat, the fellow -- nothing has happened this quarter relative to pricing changes. So I guess in the mix of things, using your term, it's stabilized.

And what drove the increase in the investment yield this quarter?

We have a little bit longer duration in the portfolio at this point.

Is that adjustment expected to be longer term or --

Yes, I mean we have obviously laddered to make sure we can meet our claim payment obligations as [paces] have slowed down a little bit. We obviously look to see what our optimal duration is compared to where interest rates are, and we like (inaudible) duration to take advantage of where the market is now.

And just lastly, can you provide an update of your (inaudible), remind of us what needs to occur for the DTA allowance to be reversed?

The allowance to be reversed? Again, that is going to speak to more of a sustained -- several quarters of sustained profitability. So it is probably, simply put, the guidance isn't exactly clear on that as to what it can and can't come in, but you would have to see several quarters of meaningful profitability and then forecast it to be sustained before it be allowed back in on a GAAP basis. You wouldn't expect it this year.

Our next question comes from Ron Bobman with Capital Returns.

I think it was Michael Zimmerman, (inaudible) in response. I think, Mike, you said it could happen as early as this quarter, and I think you were referring to something relating to the FHA regs or guidelines or rules. Could you just be more specific as to what you exactly were referring to that could happen as early as this quarter? Thanks.

Yes, what was mentioned earlier on the call was about the new eligibility requirement from the GSEs, that we could see those public as early as this quarter. So it was on the eligibility criteria that includes the financial and the risk capital, those types of measurements that we're all anxiously awaiting.

And I'm sorry, in draft form? I'm sorry to interrupt you. Go ahead, I apologize.

(Multiple speakers ) It would be in draft form. So it would be published, what we said, earlier this year, the expectations would be the same, is that they would be made public by -- and then there would be some public comment period. So they would be made public in draft form.

We don't know what the implementation date or the effective date would be. But they would be made public for all of us to be -- well, you to review and us to review, and we think that could happen as early as this quarter but not effective this quarter, correct. We don't know what the effective date is, and we would expect, still, a transition period to go -- but we don't know the length of that transition period.

Got you. Thanks a lot. Appreciate it.

Sure.

Our next question comes from Conor Ryan with (technical difficulties) Capital.

Hello, guys. Thanks for your time. Just had a quick question on persistency. Obviously, we saw the trend in the quarter. Any sort of view on where you could see that start to ratchet up to over the coming quarters?

Let's see if we're consistent. (laughter)

Kind of what we said earlier, (inaudible) maybe pick up a few more ticks along the way, but mid-80%s on the overall portfolio would kind of be the long-term top end of that range.

And then just the follow up to that obviously is, assuming approximately flat NIW, I mean, that should lead to some pretty decent insurance in force growth, correct?

It could lead to some growth. I'd leave you to the adjectives, but it should lead to growth in the portfolio, yes.

Okay, thank you.

Our next question comes from Douglas Harter with Credit Suisse.

Thanks. I was wondering, has there been any movement in any of the defaults that have been there for two, three, or more years? Has there been any movement in that?

We continue to see activity out of there. I wouldn't say there is anything out of the norm as far as any significant changes. I mean, our claims received coming in the door have continued a steady decrease, and we see claims and we still see some cure activity out of those late-stage notices, but I see no significant changes in the last quarter.

And I guess have you had more conversations with the servicers around the ultimate -- their ultimate timing around bringing them to claim, or whether they have the documentation to be able to bring them to claim?

Well, this is Mike. We repeatedly have interactions with the servicers. We have a dedicated group in our claims area that is a servicing relationship team. So we're always engaged with them.

We're obviously reviewing things going out. Last year we did several detailed deep dives to see if they are coming to fruition or not, and we still expect them to at this point in time.

Things have slowed down. There's new changes with process, so from CSPB as far as delaying things. So it is taking longer. That it is causing things to age out more.

But we haven't seen anything yet on a meaningful matter. You're always going to see one or two, right, that we could have a problem with. But as you can see from our rescissions of denials rates, which is very, very low, we are not seeing that as a cause.

Great, thank you.

Our next question comes from Sean Dargan with Macquarie.

Thank you and good morning. I saw something in the press. It was an interview with the FHA Commissioner Galante, and she seemed to imply that there would be no more FHA premium rate increases. Is that kind of what you're assuming in your base case of taking share from FHA?

Yes, we -- I think there has been more pressure to reduce it, so certainly not on the other side of increasing. So our expectation is that they need to repair their balance sheet and they need these price increases as well as the no-cancellation to do that, and they will continue to do that. And the rhetoric out of Washington reinforces that. So our assumption is that it continues as is.

And listening to some of the homebuilders, they seem to imply that mortgage eligibility is still too restrictive. Do you sense any movement to kind of make it easier to get a mortgage that would help you guys?

Well, I mean again, rhetoric, I would expect the homebuilders and the realtors to always make that statement. So the FICO scores I think are coming down somewhat. I think if you look at home-buyer surveys, financing is becoming more readily available.

I mean, there was a great deal of confusion for lenders relative to the QM and QRM regulations and how to deal with that, and that is all being settled out now. So I think the combination of that settled out, winter conditions being over and a glorious spring ahead of us, that we will see the market return to more normal conditions.

Okay. And one last question about the converts. As we go out further, the dilution from the 5% and 9% converts could represent a real headwind to EPS growth. Is there any ability and/or desire to retire those early?

Well, I guess what I would say, it is Tim speaking, is it would be good to know what the capital requirements are, and then once we saw those, it is easier for us to figure out if there is something to do related to anything that's happening at the holding company.

Thank you.

Thank you.

And I am not showing any further questions at this time.

Okay. With that, I wish you all a great day. Thank you for your interest in our Company.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.