MGIC Investment Corp (MTG) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the MGIC Investment Corporation fourth-quarter earnings call. (Operator Instructions). As a reminder, this conference is being recorded.

I will now turn the call over to your host, Mike Zimmerman. Please go ahead.

Thanks, Stephanie. 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 both the full year and fourth quarter of 2014 are Chairman and CEO, Curt Culver; President and COO, Pat Sinks; Executive Vice President and CFO, Tim Mattke; and Executive Vice President of Risk Management, Larry Pierzchalski.

I want to remind all participants that our earnings release of this morning -- which may be accessed on MGIC's 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 include certain non-GAAP financial measures.

As we've indicated in this morning's press release, which we posted on the website, a presentation that contains additional information pertaining to our primary risk in force, new insurance written, and other information which we think you would find valuable, is posted there.

As a reminder, when there is net income, we must transfer dilution for each of our convertible securities. For this quarter, being the fourth quarter of 2014, all the shares that could be converted relative to the 2017 and 2020 securities were included, and the associated interest from those securities were excluded for purposes of calculating the diluted EPS that was reported in the press release.

During the course of this call, we may make comments about our expectations of the future, which on this call also include statements regarding the potential impact of the draft GSE mortgage insurance eligibility requirements, or alternatives MGIC for these draft mortgage insurance eligibility requirements implemented in their current forms. 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're not undertaking an obligation to update those statements in the future in light of subsequent developments. Further, no interested parties 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 Form 8-K.

With all that said, it's been my privilege since 2003, and again today for the final time, to turn the call over to our CEO and Chairman, Curt Culver.

Thanks, Mike. Good morning, you all. I'm pleased to report that in the fourth quarter we reported net income of $74 million or $0.19 a share compared to a breakeven quarter in the fourth quarter of last year. I'm also pleased to report that we achieved another milestone in our Company's recovery, by recording net income of nearly $252 million from the full year 2014, or $0.64 a share on a diluted basis.

It's not been since fiscal year 2006 that I have reported annual profitability to you, so I'd like to thank you for your support from shareholders and customers, and the hard work and dedication of my fellow coworkers at MGIC who made it all happen.

The quarterly financial result was driven primarily by a lower level of incurred losses, which totaled $117 million compared to $196 million last year. The decrease was primarily a result of receiving 17% fewer delinquency notices than the same period last year, and an improving cure rate on new notices year-over-year. For the quarter, incurred losses had a one-time benefit of approximately $20 million, nearly half of which was attributable to favorable resolution of litigation relating to our bulk business.

During the quarter we made no material changes to our frame rate or severity assumptions, but there were minor changes that involved assumptions regarding loss adjustment expenses and IBNR. We made changes to our claim rate and severity assumptions based on how our delinquent portfolio reacts to changes, positive or negative, in housing and economic trends. Changes in the credit performance typically emerge over time, and do not occur suddenly.

95% of the new delinquent notices received during the quarter were generated from the legacy books of 2008 and prior. This is particularly telling, when you consider that 53% of our in-force was written after 2008. Approximately 85% of these notices have been previously delinquent, and tend to have a higher cure rate then notices of a first default. The delinquent inventory ended the quarter down 23% year-over-year and down 3.9% sequentially, ending at 79,901 loans. We expect to see the inventory continue to climb during 2015.

Paid claims in the fourth quarter were $248 million, down 33% from the same period last year, and down 6% from last quarter. As a result of fewer foreclosures being processed, claims received also declined, and were down 31% from the same period last year, and down 8% quarter to quarter. For the full year, we paid $1.1 billion in claims versus $1.8 billion in 2013. Like the delinquent inventory, we expect paid losses to be lower in 2015 than in 2014.

We estimate that our industry's market share for the third quarter was 15.5%, with approximately 25% being single premium, which is predominantly lender paid, or LPMI. Within the industry, we believe that we have maintained the market share gains we realized over the last several quarters and estimate that our fourth-quarter market share was 20%. For the full year, our new insurance written increased 12% over last year, coming in at $33 billion. In the fourth quarter, we wrote $9.5 billion of new business, up 43% when compared to the fourth quarter of 2013.

LPMI singles comprised approximately 14% of the quarter's volume. And reflecting the competitive environment, there was an average discount of just under 5% from the LPMI rate card. There was no material impact to the overall premium yield on NIW as a result of the LPMI discount, however.

What difficult to say precisely, our expectation is that the level of LPMI and the level of discount will increase from fourth-quarter levels.

As you are aware, the FHA is going to reduce its annual premium rate by 50 basis points at the end of January. So while we certainly expect that the FHA to reduce its premiums in time after it shored up its balance sheet, frankly we were taken aback by the amount of the premium reduction and the premature timing relative to its financial situation. Obviously this premium reduction is contrary to the FHA's need to increase its reserve fund. It was approximately 2 months ago that the latest FHA actuarial report reported that the reserve fund was still below its a minimum capital level, and that an extra year had been added to the amount of time it would take to get to the 2% minimum.

In addition, the premium reduction is also contrary to public policy desire for the housing finance system for increased use of private capital. But as I have said many times over the past five years, it is what it is, and let's get on with it.

It is been a bit more than a month since the GSEs announced that they would again purchase 97% LTV loans, provided that mortgage insurance is obtained to lower GSE and taxpayer risk. This was welcome news, as we were already willing to ensure these loans with established guidelines in pricing. However, as we sit here today, we are not anticipating writing a material amount of this business because the FHA premium reduction will make the FHA more attractive to many of the lower FICO borrowers after the GSEs' loan level price adjustments, guarantee fees, and PMIERs are considered.

It is disappointing that private capital did not get a chance to demonstrate that it can help improve access to credit for all creditworthy borrowers, regardless of FICO score. However, even after considering the FHA premium reduction, we estimate that for a substantial majority of the business we wrote in 2014, the borrowers would still have had a lower monthly payment using private MI then FHA insurance. And if any of the GSEs' fees are lower, it makes our premium plans more appealing for all FICO scores.

Plus, for borrowers concerned with the total cost of mortgage insurance or a faster buildup of equity, private mortgage insurance is a much better execution to the borrower, regardless of the monthly cost differential at virtually all FICO levels, which is shown on our portfolio supplement.

Consequently, we do not view the FHA premium reduction as a major setback, but more in line where the pricing differential was a decade ago. Providing a private-sector alternative to government insurance is one of the principles that Max Karl founded our Company and this industry on. And as the largest provider of government insurance, the FHA has always been our largest competitor through the 40 years I have been in the business. This price reduction by the FHA is just another change to the ever-changing housing finance system.

As a reminder, in the late 1990s and early 2000s, FHA was priced at 50 basis points annually, and 125 basis points upfront versus the 80 basis points and 175 basis point structure that will result from the price reduction, and our industry captured nearly two-thirds of that insurable market back then. That was accomplished because we were able to demonstrate that we had a better value proposition for both lenders and the majority of low-down-payment borrowers, and these value propositions are even more favorable today. So as I said earlier, let's get on with the competition.

Overall, with 30-year mortgage rates remaining affordable and an improved employment situation, we expect a relatively healthy purchase market in 2015. Considering current marketplace dynamics, we expect to write a slightly higher volume of business in 2015 than we did last year.

We could see a materially higher level of NIW if refinances are stronger than we expect. Currently, our purchase application pipeline remains robust, running approximately 30% higher than a year ago. And we have seen a pickup in refinance trends actions moving closer to 20% from the low teens throughout most of 2014; insurance in force for nearly 4%, as a result of the increased levels of new insurance written; and higher persistency to end the year at $165 billion.

At quarter end, approximately 61% of our insurance in force was covered by reinsurance transactions. During the quarter, in total, the reinsurance transactions had the effect of reducing net income by approximately $10 million. At quarter end, cash and investments totaled $4.8 billion, including $491 million of cash and investments at the holding company. 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 minutes to discuss the regulatory environment. We are still waiting for the final decision regarding the GSEs' private mortgage insurance eligibility requirements, or PMIERs. We currently expect these rules to be finalized and published no earlier than the end of this quarter.

We don't really know what, if any, changes the FHFA and the GSEs will make regarding the various balance recommendations that we and others made, but the comments we have heard were positive to our industry. As we talked last quarter, it's important that the capital rules provide the GSEs with strong counterparties and apply a risk-based methodology. But they should also achieve the public policy goals of expanding access to credit for creditworthy borrowers, decreasing the government footprint in housing, and reducing taxpayer exposure by encouraging private capital to take a first loss position on residential mortgage credit.

In 2014, we estimated that if PMIERs were implemented as drafted -- that is, without consideration for the balance changes MGIC and others recommended -- MGIC would have a shortfall in required assets of approximately $300 million by the end of 2016. That is despite MGIC's current risk to capital ratio of 14.6 to 1, and its return to annual profitability.

However, we believe that a combination of internal resources, additional or changes to existing reinsurance contracts; and, if needed, non-dilutive capital, would enable MGIC to mitigate this estimated shortfall and comply fully with the PMIERs' requirements. We have been in discussions with the existing panel of reinsurers, and feel confident that we will have a solution that will eliminate any meaningful capital haircut from the GSEs.

Depending on the final form of the PMIERs, reinsurance and internal resources may be the way to overcome any PMIER shortfall. Importantly, even if there is no modification to the proposed PMIERs after considering reinsurance benefits, we still would be able to maintain mid-teen returns based on the mix of business we expect to write in 2015, given the underwriting quality and pricing terms being offered.

Further, we would hope that, post-PMIERs, that GSEs would lower the loan level price adjustments and G fees they charge, and begin to seriously consider transferring more risk to the MIs either in the form of deeper coverage on the above 80% LTVs or staking insurance in loans below 80% LTV, as their concerns of counterparty risk will have been abated; all of which are a company in our industry would benefit from.

The review and updating of state capital standards by the NAIC, which the Wisconsin insurance regulator is leading, continues to move forward, although we are not aware of a timeframe for implementation. We do not expect the revised state capital standards to be more restrictive than the financial requirements of the draft PMIERs.

The debate over housing policy and market structure was brought front and center once again with the recent FHA premium price cut and the GSEs' announcements of 97% LTV loans, and the awaited policy direction of G fees and loan level price adjustments by the FHFA. At the same time, the President announced the FHA premium reduction he also renewed this call for GSE reform. In the past, I have said that Congress would not act on any legislation for a number of years. It is possible, with the change of parties in control of Congress that there is more legislative activity than we initially thought. But I continue to believe that the current market framework is what we will be operating in for a considerable period of time, as Washington moves at a glacial pace.

In closing, during the quarter we continued to make great progress on the path towards sustained profitability, with annual earnings of $252 million. During the year, we wrote $33 billion of high quality business. The in-force portfolio grew by 4%. The level of delinquencies and claim payments continued to fall. MGIC's risk to capital ratio improved to 14.6 to 1. Our industry's market share improved nicely, and MGIC's share within our industry is strong, 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 opportunities created today. But, more importantly, we're positioned nicely for growth and success in 2015 and beyond.

With that, operator, let's take questions.

(Operator Instructions). Bose George, KBW.

First, can you just go through the components of that $20 million benefit to the losses incurred line item?

Sure. The $20 million benefit you are referring to is positive reserve development in the quarter. As Curt said, just under half of it came from a favorable resolution of litigation revolving around our bulk business as far as claims-paying practices. The other half, I would say, are adjustments to our IBNR, LE, and other within there. So I think the point we're trying to make is, there were no significant adjustments to severity or claim rate on the notice inventory, but it was within those IBNR, LE, and other reserves that the adjustments were made.

Okay, great, thanks. And then actually just switching to investment income, just curious what's been driving that up the last couple of quarters.

I think for the most part, we tried to move out a little bit on duration. That has helped us. And obviously from a credit perspective, we've been able to get a little bit of yield there as well.

Okay. And then just finally on the deferred tax asset, can you just give us your latest thoughts on when that could potentially reverse?

Sure. I think, based upon looking upon the results this year, as we've said in the past, it's a complicated sort of formula and discussion, because there's no pure formula to it. But I think at this point, there's a likely chance that it would come back on in 2015. When during the year, we don't know at this point. But I would say that 2015 looks more likely than 2016 at this point.

Okay, great. Thanks. And Curt, good luck in retirement.

Yes, thank you.

Eric Beardsley, Goldman Sachs.

Just a follow-up on your commentary around the FHA premium cut impact. How much volume did you write in 2014 in those FICO LTV buckets where the FHA would now be cheaper than PMI?

Well, if you look at the -- through the end of the year, 5% of the business that we wrote had a payment -- FHA had a payment advantage, so we would have won 5% of that business. If you expand out to the new criteria, you're probably at maybe about 15%; so, a cumulative 20%. But again, keep in mind, we win business where we have payment differentials along the way. But that's how much would be technically, if you will, out of the money.

Great, thank you. Have you found your reinsurance agreements -- do you anticipate any cost to extend the reinsurance, or is this something that you don't expect an impact from?

I guess what I'd say is that we expect that the economic terms would be similar to where they are right now and so the cost would be more, as far as what the size of the reinsurance is. And then obviously if we extend it, those additional years would have a cost associated with them. But from a cost of capital perspective, we think it's similar or better terms to where we are right now.

Got it. And then just lastly, if the PMIERs were to be implemented as they are currently written, would you expect to have to take on new reinsurance, or are you really just looking to extend your existing agreements?

Well, we're looking to extend with the current panel, and part of the reason for that is to make sure we don't have any haircuts from the PMIER capital calculation, but we have had dialogue with the existing panel of reinsurers, dependent upon the finalization of PMIER as to whether we would have additional amounts that we would cede. As Curt said, that could a significant component of eliminating any deficit, or I guess making this a net positive from a PMIERs perspective, we would hope.

Okay. In terms of the $300 million shortfall that you initially disclosed, you wouldn't be able to just fill that with cash at the HoldCo and the assets that you have at subsidiaries. You might consider looking outside of that, as well.

I think all of those are at play. And I think from cash from a subsidiary perspective, we had said before that we have about $100 million that are in subsidiaries that aren't counted under the PMIERs. We should be able to get a majority of that to be able to count. And then with a combination of cash at the holding company, as well as potential increase in the cede on the reinsurance or the volume that would be ceded, we think we would be able to get there through those methods.

I think the key here is just the flexibility that the Company has to meet -- if they come down as they initially proposed them., I don't think they will. I think they will be more favorable to us when they do come out with finals. But we have the flexibility without adding dilutive capital to this Company to fill this void, if that's indeed what happens. So we've got a lot of alternatives available; and you've suggested one, which we are aware of.

Okay. Great, thank you.

Mark DeVries, Barclays.

Could you give us your thoughts on the probability that the FHFA will also look to reduce the loan level of pricing adjustments and/or G fees?

Of the probability of it happening?

Yes.

Well, I'm an optimist (laughter). You have to be given what we went through. But given the President's reduction in FHA, to me that sends a signal that he's going all-in on the economy over the next two years. And that, to me, would say he's going to -- I think we'll see a positive -- something positive out of FHFA on both the PMIERs as well as the loan level fees.

This is Pat. I would add there also, just like with the FHA price reduction, there's a lot of pressure in the market from the MBA and lenders on the FHFA to reduce those fees also. So there's reason to be optimistic.

Would you expect that to be coordinated with the -- if they do anything -- with the release of the finalization of the PMIERs?

That's the indication they've given us, that the timing of the release of those should be relatively close.

There be no other reason why to hold that up other than the coordinate the two together.

Right.

Frankly, I'm applauding them if they indeed were thinking that far ahead.

Yes, there -- within the G fee calculation, there is credit given for private mortgage insurance. So the impact of PMIERs will impact what they do with G fees, so it makes sense to tie them together.

Okay. And given what you think might be a reasonable reduction -- the LLPAs, if we get it -- how much of an impact did that have on the monthly payment, and impact the relative value of private MI versus at FHA?

Mark, on the margin, I would say it's going to be helpful, but it depends on the degree. If you eliminate them completely, if LLPAs go to zero, any payment disadvantage that was created by the FHA price cut goes away, and it kind of scales up from there. I think it's probably somewhere around half. But it really depends on pricing dynamics in the marketplace, where spreads are with Ginnie Maes versus Fannie and Freddies, where lenders are trying to pursue volume, maybe taking lower gains on sale, et cetera. So there's a lot of variables that come in.

Because again, on the margin, we're talking about where fees of 680, 720 bucket of borrowers, and you're talking about payment differentials of maybe $30, $40 a month, but lifetime costs increase costs of several thousand dollars a month. But technically, from a payment perspective, you get half or more, and you get a (technical difficulty).

If we're close at all, Mark, on the conventional loan versus the FHA loan, the lender and borrower is going to choose the conventional loan, just for the ease of processing that loan, and then working with the system going forward. So I really think when this is all said and done, regardless of what happens with FHA, the 97% loan is a great opportunity for our industry.

Okay, got it. And then, Curt, I think you also referenced in your comments the potential that the GSEs might look to go deeper on the covered and do more risk sharing. Is that something you get the sense that they're working on right now?

I think those things are being looked at. And again, it relates back to their mandate from FHFA to offload more risk, if you will, from taxpayers. And given the new eligibility requirements, they have a stronger-than-ever credit counterparties against that. So I certainly think, given what they've done with their portfolio, that they're looking at that going forward on new writings also.

Great. And Curt, let me also wish you well on your retirement. It's been a pleasure over the years.

Thank you, Mark. I have enjoyed working with you. Thanks.

Jack Micenko, SIG.

Let me ask Mark's question a different way. Curt, you had given some historical context around where the FHA fees had been in the late 1990s, early 2000s, knowing that the GSEs -- or the FHFA, rather, ramped up LLPAs in the crisis. Can you give us historical context where LLPAs were back in the earlier part of the 2000s, just a sense of magnitude on where we could go?

They weren't there.

Not zero?

They were zero.

Okay. Okay, great. And then the underlying (multiple speakers).

Jack, just to be clear, there was a guarantee fee.

Yes.

Sure.

(multiple speakers) but there was no adverse market charge and there was no -- for a mainstream product, there was no add-on fees.

Okay, so the 275, 120, the really heavy lower FICO, those were still zero. The G fee was there, still, but nothing on top of that?

Right.

Okay. Perfect. And then the underwriting ratio has come down pretty nicely in the last six quarters. How much operating leverage do you think you have in the model? How much business can you write with the expense base you have? Does that number move materially further down from the 13-and-change level we saw this quarter?

Yes, so I think you're referencing the underwriting expense ratio. What I would say is it's probably gotten about to its lowest point. Keep in mind that the ceding commission is taking that ratio down, so that's had an impact of probably 3 to 4 percentage points on the ratio. And then we've been very diligent obviously through the financial crisis on expenses, and continue to be so. But I think it's safe to say that even excluding the ceding commission, that we've probably reached sort of a low point from an expense standpoint. Not that you're going to see a large jump in the ratio, separate from the ceding commission, so we think we can still scale a lot off of where we are with expenses, but there will just be some upward pressure on expenses going forward.

Okay, great. One last question: Curt, you've been around the business a very long time. Energy prices -- Texas is a fairly big market for you, although you get an energy relief across the broader footprint for higher levered borrowers. How do we think about that? Is there a qualitative component to the loss incurred that's either favorable or unfavorably adjusted? Just some historical perspective there, maybe.

I would say that the overall benefit to the country outweighs the issues, if there are, in Texas or North Dakota. I think this is a net positive to all our borrowers to a couple states that may have some issues, although still I think they are insignificant issues. I think the price is still at a level that people can make money at, and won't impact those states as much as may have been indicated. But I think the overall benefit to consumers across the country will far outweigh any issues that this may cause.

Okay, great. And add my congratulations, as well. Thanks.

Yes, thank you.

Sean Dargan, Macquarie.

I'm trying to reconcile the guidance that the new insurance written will be slightly higher in 2015 versus 2014 with the comment that 20% of 2014's business will be cheaper under FHA, under the new premium rates at FHA. What internally are you assuming you're going to lose incrementally to FHA?

First let's start with the technical, the method. And we're looking at a smaller overall origination market in 2015 versus 2014. And then with our industry's market share being right around 15% plus and change, and we're right around a 20% market share, part of that does assume modest growth in our industry's market share, and we continue to have modest growth in our market share throughout the year.

But you start with the at the macro environment, and then when you start getting into competition relative to where the product goes, it's just as Curt said earlier, it's -- we have advantages and disadvantages. We lose technically 5% of the business we wrote in 2014 was cheaper on a monthly payment basis, yet we got that business.

So we said 20% of the business would fall technically -- have a cheaper monthly payment, even though the all-in cost would be more expensive. So to quantify how much of the additional 15% we lose, if you will, we don't know. There's going to be on the margin, there's going to be a borrower that maybe goes that way. But if they're on the margin, they come back our way, too.

And then what I would recommend you do is talk to mortgage lenders. And you'll find that the mortgage lenders, at anything close, will go conventional. And I think by 97s being offered, it will offer -- that's a net increase. I think the refinances will be significantly higher next year than this year, given where rates are and where I think they'll remain to be. I don't think, again, as I said, on the FHA, I think that will ultimately, with the 97s will -- the gain in business there will outweigh the loss of business that may have happened because of the price decrease.

I'm stepping out of this thing, but I got to tell you, I'm more optimistic relative to volume than what I stated here and as far as the Company. I think it will be a good year for volume, next year.

Okay, great. That's helpful. And if I could just turn to slides 19 and 20 in which you are comparing a conventional loan with MI versus FHA insured, you guys had prepared something similar at the end of 2013 when there was a rumor that LLPAs -- or a notion that LLPAs might be raised. When I look at the spread between the conventional rate and the FHA rate, it is tighter now than it was at that point. Is that based on what the market is offering today? I'm just wondering why the spread differential is narrower now than it was then.

Yes, well, I think that's a lot to do with it. It ebbs and flows over time. Two years ago, the spreads were probably at -- maybe, I'll call their all-time wides in the secondary market execution. Today they have tightened up quite a bit. They're past tighter than normal. You can actually go out to the largest lenders' websites and see that they are offering conventional interest rates at a lower coupon then FHA, where traditionally you'd see them at anywhere from an eighth to three-eighths higher than conventional or FHA. So, as I said earlier, there's a lot of dynamics that go into the pricing of this.

We're showing what we think is a more traditional view of where the spreads are with interest rates, where conventional is typically a little bit more expensive on the coupon because of the inherent differences in Ginnies versus Freddie-Fannies. And then layering into how lenders pay for those fees, or how borrowers pay for those fees that the GSEs charged in the form of high rate. But that can change by the hour, quite frankly.

Got it, thank you. And Curt, congratulations.

Thank you.

Douglas Harter, Credit Suisse.

I was just hoping you guys could help me reconcile what's going on in the industry with the pricing differential on a large portion of the LTVs, and your commentary that mortgage bankers prefer to work with conventional versus FHA. Why is it that we're still well below historical market share for the private industry? And what changes to get back to that level?

As this all pointed out, I think again what will happen -- I think the point that's not noted is the fact that the VA is now 25% of the market. I think when this is all said and done, we will be back to traditional, where the conventional is 50% and FHA will be 25% and VA will be 25%. Back when -- 10 years ago, VA was insignificant in that number. So that's why our share is not higher than it was back then right now, is more VA-related than FHA-related. And God bless our veterans. The more we do in that area, it's just better for everyone. I think the real difference is the fact that VA wasn't in the old number, frankly, and is a significant part of today's number.

And then, Doug, I would also point out the trend in 2014. Our industry had about an 11% share in the first quarter, and it grew to 15% and change by the end of the year. So there's been consistent growth, as we've said, over the last couple of years as the world has normalized, and we've re-orientated lenders to the benefits of private mortgage insurance. Those other -- we have more expansive guidelines for them to satisfy their needs.

Got it. And then just one more on the commentary around your volume expectations for 2015 over 2014. Just looking -- obviously 2014 start -- sort of to those points that Mike just made -- 2014 started off quite slow and picked up. So the slightly higher just seems awfully conservative, given the first-quarter over year-over-year changes that you should have. Any thoughts as to the progression of volume over the years that you are expecting?

I agree totally with you.

Okay.

You got to get back though again on refinances, and there's just a lot in play right now: what happens with loan level price adjustments and things of that sort. The deal is, we're going to do more volume this year than we did last year, and it's a matter of how much. And we have differences of opinion within this room on that. (laughter) But the beauty of that is that it's going to be more business and it's going to be better business.

This is Pat. If I could add to Curt's perspective when he made the comment about as we sit here today, and that is that we're still -- we're making a best guess on the impact of the FHA, and we won't know that until it actually kicks in next week. We've got the G fees and the LLPAs coming in, we think, towards the end of the first quarter. We got PMIERs coming in, we think, at the end of the first quarter. We've talked a lot in the last couple of days about a potential big refi market and what's going to happen with rates.

On one hand, the 10-year is down quite low; on the other hand, in the paper this the morning, [Jannie Ellen] was talking about continuing their plan to increase rates. So there's a lot of noise. And I think we're going to be a lot smarter 90 days from now than we are now, but that's the reason we're being a little bit conservative as we enter the year.

Makes sense. Thank you very much.

(Operator Instructions). Chris Gamaitoni, Autonomous Research.

Just going to the origination size, what's the underlying market size that you're using in your estimates when you said we'd be smaller year-over-year?

About $1.1 trillion, $1.2 trillion right now.

Okay.

But we'll probably caveat that, that Pat just mentioned.

Yes, it's January. I'm not going to hold you to that. On the pricing reduction side, can you just clarify the 5% from here? Are you saying the 5% reduction to what a monthly would have been, or a 5% further reduction on the LPMI?

To the LPMI; so that 14% lender paid was from LPMI base rate.

Okay, so the 5% reduction to the LPMI base rate?

Right.

Is there any offset on cost at all, if you are doing more bulk pricing? Or there's no additional offset to that?

I think the LPMI pricing is, with discount as allowed by our rate card filings, because of the lender performance, good geographic mix, good DTI mix -- all of which are factors that are not normally addressed in our day-to-day standard rate card.

Got you. And what's the most updated side of the DTA that you can recover?

It would be around $850 million, $900 million.

$850 million, $900 million?

Yes, $850 million to $900 million. Some of it will come back through the income statement and some of it will just come back on through OCI. So the total impact I think on the balance sheet will be around $900 million, with about $850 million of it flowing through the income statement over time.

Perfect. Thank you so much.

I'm showing no further questions.

I will now turn the call back over to management for final remarks.

This is Pat. If I can jump in for a moment, I'm going to take a second to embarrass Curt. A number of people have already acknowledged, this is his last call. So before we sign off, I want to acknowledge Curt's contributions to MGIC. Curt is staying on as Chairman, but he is retiring as CEO at the end of February, so this is his last call.

For those of you who don't know, Curt has actually been with MGIC for more than 32 years; and, as he said, he's been in the business for 40. He has been our CEO since 1999. And of course, there's been a number of business cycles through that past 16 years that he has led us through. Not only has Curt been the leader of our Company, but he's been a leader in the industry, both nationally and locally in the never-ending discussions around housing policy.

He has truly been a face of private mortgage insurance for a long time. He has never shied away from a challenge. And for those of you who have consistently listened to these calls, and as you heard this morning, Curt is very much a straight shooter.

He was at his best during the recent Great Recession where his leadership with shareholders, regulars, customers, and coworkers got us through the most difficult time, such that the Company is now well positioned for the future, and as Curt calls it, nirvana.

For those of us who work Curt every day, it has been a privilege. His down-to-earth nature, his optimism, his sense of humor, his mantra to just do the right thing, have contributed to MGIC's strong culture and our legacy.

Curt is beloved by his coworkers, and he will be greatly missed.

So, Curt, on the half of all of those that you have touched these past 16 years as our CEO, and the past 32 years with MGIC, we thank you and we wish you the absolute best of luck in all of your future endeavors.

Yes. Thank you, Pat. That's very kind. I do want to -- really nice. As Pat said, this is my last earnings conference call. And I'd like to thank all our shareholders for their investment in our Company. I've had the pleasure to host these earnings conference calls for 62 quarters, but who's counting? (laughter) Some of it has been extremely positive; some have been exceedingly difficult; but they've all been interesting.

Throughout that time period, I've had the great management team to work with. Their strategic ideas and focus have made the difference in our recovery. But just as importantly, we have a group of people behind us at MGIC whose loyalty and dedication never wavered, even through the most difficult of times. Their dedication is what I will always remember about my job, and why I was so honored to be this Company's CEO.

I'm equally thrilled that we'll have such a fine management team, led by Pat, to carry forward the MGIC legacy. It really is a special place made up of special people, and I will certainly miss all of that. So, I thank them all, and God bless to all. Thank you.

Thanks, operator.

Ladies and gentlemen, that does conclude today's conference. You may all disconnect, and everyone have a great day.