NMI Holdings, Inc. (NMIH) Q3 2020 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the NMI Holdings Inc. Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to turn the conference over to your host Mr. John Swenson. Please go ahead sir.

Thank you, Leah. Good afternoon, and welcome to the 2020 Third Quarter Conference Call for National MI. I'm John Swenson, Vice President of Investor Relations and Treasury. Joining us on the call today are Brad Shuster, Executive Chairman; Claudia Merkle, CEO; Adam Pollitzer, our Chief Financial Officer; and Julie Norberg, our Controller. Financial results for the quarter were released after the close today. The press release may be accessed on NMI's website located at nationalmi.com under the Investors tab. During the course of this call, we may make comments about our expectations for the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about the factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website or through our regulatory filings with the SEC. If and to the extent the company makes forward-looking statements, we do not undertake any obligation to update those statements in the future in light of subsequent developments. Further, no one should rely on the fact that the guidance of such statements is current at any time other than the time of this call. Also note that on this call, we refer to certain non-GAAP measures. In today's press release and on our website we provided a reconciliation of these measures to the most comparable measures under GAAP. Now I'll turn the call over to Brad.

Thank you, John, and good afternoon everyone. On today's call, we'll review our third quarter results and share an update on how COVID is impacting our business performance and financial position as well as the broader housing and mortgage insurance markets. We are now eight months into this pandemic. And while public health and economic concerns persist, we continue to see broad strength and resiliency in the housing market. And we continue -- we see the same strength and resiliency mirrored in our performance at National MI. We reported strong results for the third quarter. Delivering a record $18.5 billion of NIW and $104.5 billion of primary insurance in force, notably our first quarter in excess of $100 billion. And broadly resilient earnings that traced the success of our comprehensive credit risk management framework. We built national MI to be a credible and sustainable counterparty through all market cycles. From day one, we focused on building a durable franchise in a risk responsible manner. We have worked hard to establish a comprehensive credit risk management framework and in doing so, we have built the highest quality insured portfolio in the mortgage insurance industry. Well before the pandemic emerged, we were using individual risk underwriting and rate GPS pricing to target a higher quality mix of business and had secured comprehensive reinsurance protection for our in-force portfolio. Alongside our credit risk management efforts, we've built a strong balance sheet foundation. We have been conservative in our investment portfolio and worked hard to build a robust liquidity position. We have flexible access to a broad range of capital and reinsurance markets and a significant regulatory funding cushion. Our broadly conservative stance heading into this period and the continued success we've achieved in the capital and reinsurance markets most recently with our fifth ILN closing last week, positions us to fully support our lenders and their borrowers through the duration of the COVID pandemic. We're succeeding and building value every day for our employees, for our customers and for our shareholders and other key stakeholders. The new business environment is exceptionally strong with record mortgage originations driving NIW volume and equally constructive pricing and risk dynamics driving value. Alongside this, credit performance in our in-force portfolio is trending in an encouraging direction. Overall, we see real strength in the housing market. Demand is robust, house prices continue to rise and record low interest rates are giving more Americans a chance to access homeownership at a time when it's most critical. Policy efforts are also playing an important and stabilizing role. We fully endorse the various forbearance, foreclosure moratorium and other assistance programs designed to help bridge borrowers past this point of acute stress and ensure that they are able to remain in their homes and resume their lives with limited interruption once the pandemic has passed. Homeownership is essential more so today than ever before. People need shelter in order to shelter in place. And allowing borrowers who through no fault of their own are facing real strain to stay in their homes and avoid foreclosure is the right social policy. It will also help speed the ultimate pace of economic recovery. We encourage policymakers to maintain their focus and offer continued support as needed to carry homeowners through this period. With that, let me turn it over to Claudia.

Thank you, Brad. I continue to be pleased with the performance of our team and our business through the COVID pandemic. Our transition to a remote work environment has been seamless. Our team is connected and has found innovative ways to advance our customer engagement. Our decision to prioritize discipline and responsible risk selection in every aspect of our business has been validated by the strong credit performance of our in-force portfolio. Our balance sheet strength and funding profile have proven to be durable. With standout execution in the capital and reinsurance markets and our operating platform has scaled effectively, easily supporting a massive increase in our new business volume. Our strategy works. And this comes through in our third quarter performance. GAAP net income for the quarter was $38.2 million or $0.45 per diluted share and adjusted net income was $40.4 million or $0.47 per diluted share. GAAP return on equity was 11.9% for the quarter and adjusted ROE was 12.6%. We generated record NIW of $18.5 billion, up 41% from the second quarter and 31% compared to the third quarter of 2019. The new business environment remains exceptionally strong. COVID is driving a shift in behavior and fueling what we expect to be a sustained increase in purchase demand. People are moving out of more densely populated urban areas in favor of suburban communities, where social distancing is more easily achieved. Shelter-in-place directives are reinforcing the importance of the home and driving increased interest from first-time buyers. Record low rates are added fuel, increasing affordability and drawing additional buyers to the market. This record demand is meaningfully outpacing supply and driving continued house price appreciation and broad resiliency in the housing market. Our volume is at record levels and the value of our new business production is equally strong. Our record NIW is matched by continued pricing discipline, stringent underwriting standards and attractive risk-adjusted returns on new business flow. This is a uniquely valuable new business environment. In the third quarter, we activated 25 new lenders. We are now doing business with a broadly diverse group of nearly 1,200 high-quality originators. Our sales team is signing up new accounts and deepening our penetration, all while operating on a fully remote basis. We see a real opportunity to help our lenders and their borrowers at a time when they need us most and, in turn, to increase our reach in the market. We built our company to perform across all cycles. And everything we have done to build a durable and profitable business, recruiting and retaining great talent, establishing the right culture, engaging with customers in a consultative way and managing risk, expenses and capital, has positioned us to lead through the stress. The strength of our position coming into the pandemic has allowed us to remain fully customer-focused throughout. We have been consistent with our sales message, our price delivery through Rate GPS and our underwriting response times and operational readiness. We are delivering in a business as usual way and see a clear opportunity to continue doing what we do best, responsibly deploying capital to support our customers and drive value. With that, I'll turn it over to Adam.

Thank you, Claudia. We delivered strong financial results in the third quarter, against the backdrop of a resilient housing market and stabilizing macro environment. We generated $18.5 billion of NIW in the third quarter and reported primary insurance-in-force of $104.5 billion at September 30. Net premiums earned were $98.8 million. Adjusted net income was $40.4 million, or $0.47 per diluted share, and adjusted return on equity was 12.6%. Total NIW of $18.5 billion includes a $16.5 billion of monthly production. Purchase originations accounted for 69% of our volume in the quarter, up from 59% in the second quarter, consistent with the accelerating pace of purchase activity we've seen across the housing market. As Claudia mentioned, the new business environment is exceptionally strong. We're achieving record volume, strong risk-adjusted returns on new production. And because of the record low note rates on our current flow, we expect this business will be the most persistent we've ever originated. Taken together, the volume, value and stickiness of our new business production is driving growth in the embedded value of our insured portfolio and will serve to seed our future financial results. Primary insurance-in-force was $104.5 billion compared to $98.9 billion at the end of the second quarter. While record low interest rates have helped spur exceptionally strong new business volume, who contributed to the resiliency of the overall housing market, they have continued to drive an elevated level of refinancing activity and portfolio turnover. 12-month persistency in the primary portfolio was 60% as of September 30. We expect persistency will remain low in the near term, given the outlook for interest rates. Over time, however, we expect portfolio turnover will slow and persistency will rebound, as the business we're writing in the current rate environment stays on our books for an extended period. Net premiums earned in the third quarter were $98.8 million, including $12.6 million from the cancellation of single premium policies. Reported yield for the quarter was 39 basis points, compared to 40 basis points in the second quarter, reflecting the ceded premium cost of our fourth ILN completed in July. Investment income was $8.3 million in the third quarter, compared to $7.1 million in the second quarter. Our investment income grew in the quarter, as we deployed proceeds from the equity and debt offerings we completed in June. Underwriting and operating expenses were $34 million, compared to $30.4 million in the second quarter. Expenses in the third quarter included $2.3 million of costs incurred in connection with our ILN offerings in July and October. We expect an additional $1.8 million of ILN-related costs to come through in the fourth quarter, related to our October transaction. Excluding ILN-related costs, adjusted underwriting and operating expenses were $31.7 million, compared to $30.2 million in the second quarter. Our GAAP expense ratio was 34.4% and our adjusted expense ratio was 32.1% for the third quarter. We had 13,765 defaults in our primary portfolio at September 30. While our default population increased relative to June 30 and remained elevated compared to our pre-COVID experience, our default count peaked and declined intra-quarter from 14,236 at August 31 to 13,765 at September 30. Our default rate experience was similar, declining to 3.6% at September 30 from 3.76% at August 31. We're greatly encouraged by the credit performance of our portfolio, with our default experience peaking at a low absolute level, particularly when considered against the magnitude of the COVID stress and very quickly beginning to improve, as a rising number of COVID-impacted borrowers are curing back into performing status. This trend continued in October, with our default population declining to 13,108 and our default rate declining to 3.41% as of October 31. At quarter end, 24,809, or 6.5% of the loans we insured in our primary portfolio were enrolled in a forbearance program, including 12,665 of the loans in our default population, 1,772 loans that had missed at least one payment but not progressed into default status and 10,372, or 42% of all forbearance loans, that were fully performing without any missed payments. Looking forward, while a second viral wave could exacerbate current issues and contribute to additional macro dislocation, we're optimistic that we will see continued improvement in our credit performance, as impacted borrowers benefit from a rebounding economy, the expanded set of repayment and modification options introduced by the GSEs to ease the transition out of forbearance and broad resiliency in the housing market and accelerating home price appreciation. Claims expense was $15.7 million in the third quarter, down from $34.3 million in the second quarter. We made similar assumptions in establishing our case reserves as of September 30, as we did at June 30, balancing the beneficial impact forbearance programs and other forms of borrower assistants are expected to have on our ultimate claims experience, with a conservative view on house price paths and other macroeconomic factors. Interest expense in the quarter was $7.8 million, reflecting the full run rate cost of our $400 million senior notes issuance in June. We recorded a $437,000 loss from the change in the fair value of our warrant liability during the period. GAAP net income for the quarter was $38.2 million or $0.45 per diluted share. Adjusted net income, which excludes periodic transaction costs, warrant fair value changes and net realized investment gains and losses, was $40.4 million or $0.47 per diluted share. The ILN that we closed on October 29, our fifth Oaktown reoffering, builds upon the success we've achieved in the risk transfer markets to date and extends our comprehensive reinsurance coverage across our most recent production. The $242 million deal carries an estimated 4.7% weighted average lifetime pretax cost, and is similar in structure to our first four transactions, providing us with real working layer risk protection and capital benefit. The transaction further insulates our balance sheet and PMIERs position, against the impact of future forbearance activity and default experience. Our latest deal is particularly notable in this regard. It covers us for cumulative claims experience on risk originated primarily between April 1 and September 30 of this year from a 2% attachment point up to a 6.25% maximum detachment. Our attachment point on a [Indiscernible], it's the amount of risk, we retain before the reinsurance attaches and we benefit from ILN coverage. Our 2% deductible is markedly lower than that of all other comparable deals completed since the COVID outbreak, which had averaged 3.1 particularly lower than that of all other comparable deals completed since the COVID outbreak, which have averaged a 3.1% attachment point and it's actually lower than nearly all comparable pre-COVID transactions as well. Achieving a materially lower deductible, means that we will realize a reinsurance benefit at a far lower loss level and our balance sheet will benefit from loss protection at a far earlier stage. This provides us with a direct benefit in the event the performance of the housing market shifts through the course of the COVID recovery. A lower deductible also provides us with increased PMIERs efficiency, by allowing us to release more of the equity capital that we had previously allocated to support this pool and redeploy it in support of incremental high-quality, high-return new business production. Our ability to successfully execute another regular way ILN offering and to achieve such a favorable outcome in terms and price, broadly demonstrates the durability of the ILN market, as a source of support for mortgage insurance risk and highlights the confidence that investors have in our individual risk underwriting approach and consistent use of rate GPS to target higher quality volume. Total cash and investments were $1.9 billion at quarter end, including $75 million of cash and investments at the holding company. Shareholders' equity, at the end of the third quarter, was $1.3 billion equal to $15.42 per share. We have $400 million of outstanding senior notes and upsized our revolving credit facility to $110 million, following the close of the quarter. Our revolver remains undrawn and fully available. At quarter end, we reported total available assets under PMIERs of $1.7 billion and risk-based required assets of $991 million. Excess available assets were $681 million. The ILN issuance that we closed last week is not included in these figures, as it was completed after quarter end. The $242 million offering will further bolster our excess position and provide even more funding runway for future periods. Overall, we delivered strong results for the quarter, with a record volume and value of new business production and encouraging credit performance in our in-force portfolio, driving resiliency in our earnings. We continue to differentiate with our success in the ILN market and the strength of our current funding profile and comprehensive and uniquely expansive nature of our reinsurance program provide us with significant PMIERs and state regulatory capital runway. With that, I'll turn it back to Claudia.

Thanks, Adam. COVID has brought into sharp focus the important role that National MI and the broader private mortgage insurance industry play in supporting a healthy and functioning housing finance system that works for borrowers', lenders and taxpayers across all market cycles. We came into the pandemic in a position of strength, bolstered by the conservatism, with which we have managed our business and we have continued to provide support and build value through this period. As we navigate through COVID, we will continue to leverage our proven strategy to expand our customer engagement and market presence, while writing record new business and growing in a risk responsible manner. Thank you for joining us today. I'll now ask the operator to come back on, so we can take your questions.

[Operator Instructions] Your first question comes from Mark DeVries from Barclays. Your line is open.

Thank you. Could you discuss how the roll rates of your newer default particularly the ones -- some borrowers you've opted into forbearance have compared to your expectations? And what would you need to see to potentially reassess that 7% claims rate assumption you made in your case reserves?

Sure. I'd say Mark, it's obviously still early. But the roll rates and the transition rates that we saw during the quarter were consistent with our expectations when we establish reserves on the earliest COVID defaults in the second quarter and there's nothing significant that changed, that came through in the third quarter, that caused us to think a reset was necessary. We applied that same 7% claim rate to the new COVID-related defaults that came in in the third quarter, as we had in the second quarter. Going forward, we'll monitor macro data, particularly around house price appreciation to assess whether or not we need to make adjustments to that claim rate. One item, I would note is, I mentioned in the prepared remarks, that we made a similar set of assumptions in establishing our case reserves. It wasn't just the roll rate, but it was the underlying macro factors that went into the development of that roll rate. We continue to assume that house prices will be down modestly over the next two years. We think it's an appropriately conservative stance. But as more data comes in, that reinforces the view around the resiliency of the housing market in particular, the accelerating path of home price appreciation those will be items that we monitor going forward.

Okay. That's helpful. And then, the expense ratio was down less year-over-year than it generally has been even after adjusting for the capital markets transaction cost. Was there anything else in expenses worth calling out that weren't in the operating leverage? Is this just a product of having to turn your book a lot more with refi allowance? It's going to limit operating leverage until you see some of that refi volume slow?

Yeah. In the quarter I would say the increase that we saw in our overall expenses, which weighed a bit on how the development of the operating leverage unfolded. Part of it was related to just the growth in our portfolio and some of the variable costs albeit not significant, but there are variable costs associated with new business production. We also had a modest benefit in the second quarter that didn't continue to come through in the third quarter related to the start of our IT partnership with TCS, we signed the contract on 31st March with them, but expenses ramped through the quarter alongside the ramp of that engagement and our Q3 expenses reflected a full quarter's worth of that relationship. In terms of our operating leverage going forward, we fully expect that we will continue to see strong growth in our insured portfolio that over time that will drive strong growth in our premium revenue that far outpaces the necessary investments that we need to make or the growth in our operating expenses and that operating leverage will continue to carry forward.

Great. Thank you.

Your next question comes from Rick Shane from JPMorgan. Your line is open.

Hey, everybody. Thanks for taking my question. Good afternoon. I'm curious Adam one of the things that you highlighted in your comments was the demand for housing driven by the urban exodus. I'm curious if you are seeing any distortions in terms of either home prices or default rates related to urban environments versus suburban or far suburb environments?

Yeah. We did highlight that. And it is certainly something that's driving an increased amount of purchase activity. I would say much more of what we're seeing really driving the skyrocketing demand is what I'll call it the emotional drive towards homeownership that in this environment the house is everything. Brad used the phrase that in order to shelter-in-place you need shelter. And that's something we've come to talk about internally that's really driving that emotional need. Right now the house is -- it's where you work, it's where your kids go to school, it's where you go on dates with your significant other. And it's that emotional aspect. And layered on top of that augmenting it a bit is that shift from urban to suburban. In terms of performance geographically, we're seeing pretty much across the board encouraging trends from a credit performance standpoint even in those markets that we would identify as being the most exposed to the industries that are hardest hit by COVID, Las Vegas and sort of the greater Henderson area, for example, in Nevada that is perhaps the most exposed to travel and leisure, gaming and entertainment, house prices are up 7.5% on an annualized basis since the start of the COVID crisis. And remember house prices really drive such a significant amount of credit performance. We're not seeing outside of perhaps small pockets of central business districts in some larger cities that are dealing with their own idiosyncratic issues like New York maybe parts of Chicago or L.A., we're really seeing broad-based national strength from a house price standpoint, from a demand standpoint and by extension from a credit standpoint.

Got it. Okay. That's helpful. Because again anecdotally one of the things that we're hearing is that that urban exodus is more family driven. So you're seeing the divergence for example in terms of home price appreciation or depreciation in urban environments for smaller places versus larger places as families leave the cities, but young professionals don't, are you seeing that in the portfolio at all?

Yeah. I think anecdotally we're seeing that as well, but it's not -- I would say we're not looking at individual house price development for each of the homes that we're insuring and so couldn't give you a perfect window into what's trending there.

Okay, great. Thank you guys very much.

And our next question comes from Sam Choe from Credit Suisse. Your line is open.

Hi, guys. I'm on for Doug today. Adam, did you provide an update on what the single premium cancellation impact was on the yield?

Sure. Bear with me a second Sam we have that. So in the quarter, we had $12.6 million of cancellation revenue. That compares to $15.5 million of cancellation contribution in the second quarter. From a yield standpoint was about five basis points of yield just as a point of comparison. In the second quarter, the $15.5 million of cancellation revenue was about 6.3 basis points of the yield component.

Got it. Okay. Since we're on the topic of yield, I guess we have the fifth ILN that you guys did that's coming in. So how should we think about fourth quarter? I know there's a lot of moving pieces to this but just your thoughts there?

Yeah. I think you hit the nail on the head. There are a lot of moving pieces. It's going to depend on where cancellation revenue comes in, it's going to depend on what happens from a persistency standpoint, and a volume standpoint. But looking at it now not to give you anything explicit, but perhaps as a steer we do expect perhaps a modest decline in yield in the fourth quarter to reflect the addition of fifth ILN. Also the impact I would say, in the quarter our fourth ILN was -- it hit yield by about 1.2 basis points. Our fifth ILN was smaller. It was $242 million in size versus $322 million in size for the fourth ILN. And it was also more efficient from a pricing standpoint. We were able to achieve meaningfully better terms on that transaction. So look at that as a point of reference as well.

So it should be slightly -- maybe slightly less than one basis point I guess that are good?

Well, I can do the math, don’t worry.

Yeah, yeah. Thank you.

Your next question comes from Tommy McJoynt from KBW. Your line is open.

Hi, guys good evening, and thanks for taking my question. There's been some chatter today about the increased competition in the bulk bid market. So first off, can you guys just give us kind of what your level of participation is in that channel? And then just your broad view on the competitive landscape there?

Sure, sure. Hi, there. So let's just speculate on the bulk bid, we don't participate in that. Our primary focus is risk based pricing and COVID has really confirmed that strategy, where we can quickly commit to market uncertainties whether that's in certain geographies or more broadly. As far as pricing overall, the pricing environment remains constructive. Price is up, risk is down, capital required to support new business is down so unit economics are up. We were early to raise rates. It's always been our posture to be more conservative. And especially in the face of an unprecedented stress event, but everyone else eventually followed suit.

Yeah. One other reference point, I think as Claudia said, we don't touch that market. It's not where we participate right now. And we are laser-focused on rate GPS. To give you a sense, our pricing is still really constructive and resilient. In October, we're now early November. In October, the pricing on our new business applications was up 10%, compared to the first week of March. And that's exactly the same stat that I referenced when we had our second quarter call, about our July and our June production. And important to note, that's up 10%, even after adjusting for -- it's not like-for-like from a risk standpoint it's just up 10% side-by-side, it's up even more on a risk-adjusted basis.

Okay. And has the sort of selling of the ILN market, had any impact on pricing?

I mean look, we obviously only control our pricing. As Claudia mentioned, we haven't really seen broad moves from a pricing standpoint out in the market, in large part because we're not participating actively on the bulk side or with those negotiated bids. We've always been of the opinion that, our ability to get favorable outcomes in the secondary market, either the ILN market or the quota share market is in part predicated on us being responsible actors, in the primary market. And that's not just from a risk standpoint it's also from a pricing standpoint. We haven't noticed, anything I'll call it, creeping from the ILN market into the primary market.

Got it. Thanks. And then, just last one, thinking about, how quickly some of the recent advantages meaning the -- post the price increases that were implemented in March, are becoming such a large part of the total in-force book. Is it reasonable to think that, the core in-force yield could stabilize fairly soon, perhaps within the next year or so, assuming that's no further price changes?

Yeah. We don't give a look forward. But certainly we're getting a benefit now around sort of the quantum of business coming on. And the pricing at which we're bringing that business on. There are still large chunks of our portfolio though, that have some real premium rich business that was originated prior to tax reform and pricing changes that came into the industry in the middle of 2018 that are -- I would say, that are still right for refinancing. So, if all else was equal and we were simply bringing on net new business, it might have a stabilizing effect. We need to see what happens from a refi cycle and a runoff standpoint as well.

Okay. Thank you, Adam.

And your next question comes from Jack Micenko from SIG. Your line is open.

Hi. Good afternoon everybody. Adam a couple of forbearance questions for you. And I'll mention kind of them a little quickly. Forbearance rate on, the total inventory, forbearance rate on, the new DQs this quarter, if, you have those two numbers?

Sure. I don't have the forbearance rate on the new defaults in the quarter, but I can give you a directional steer. At quarter end we had 24,809 loans that we insured, that were enrolled in the forbearance program. That's a 6.5% forbearance rate. That number is down. I think we had about 28,500 doing this from memory right about there at the end of June. And I don't remember what that was as a rate 7.6 7.7 as a rate. So we're seeing a decline that's generally consistent with sort of the quantum of movement that's being reported about the GSE data. Of the new defaults that came through in the quarter, I don't have that rate. But of our 13,765 defaults that we had at September 30th, 12,665 of those were in a forbearance program. And I would say, nearly all of the COVID-related defaults, those that emerged following really March were -- nearly all of them are in a forbearance program, but the bulk of those that are not in a forbearance program, relate to our pre-COVID default population.

Got it. Yeah that was my next question. And then, we've had a few of your peers report today as well. And the refi mix production has come down sequentially. Is it too soon to claim victory, as it relates to persistency going forward, or is a move from say 40% to 30% not enough for you to signal hey! persistence is going to bounce off these low points here a little sooner than expected?

Yeah. I wouldn't declare victory per se. I think what we're seeing, in terms of the mix shift, it's more a reflection of the strength and the accelerating path that purchase demand is taking, and that we're seeing in purchase origination volume, as opposed to something notable happening in terms of slowdown or refinancing volume. There is obviously a date out there that we need to monitor, which is December 1st when, the currently proposed GSE adverse market refi adder…

Yeah.

… 50 basis points would go into effect. We obviously -- we're monitoring that. It's too early to know. One if that's going to ultimately be imposed at that point extended as it had been originally and what effect it will have. With mortgage rates in the 3% zone, even for refinancing right now, there's still a lot of business that's right for refinancing.

No. Okay. Thank you.

[Operator Instructions] Your next question comes from Geoffrey Dunn from Dowling & Partners. Your line is open.

Thanks. Good evening.

Hi, Geoff.

A couple of number questions first. Adam, I missed the cash at the holdco. Could you repeat that, please?

Sure. It's $75 million.

Okay. And was there any favorable IBNR development, in the current year provision this quarter?

There was Geoff. So in the quarter, we had doubled our IBNR factor in the second quarter, to reflect the fact that, when servicers were candidly drinking from the fire hose and dealing with the emergence of COVID. And a massive influx of new reporting needs from both the forbearance standpoint, and just a larger number of defaulted borrowers. We were accounting for some degree -- some amount of service or lag. We normalize that IBNR factor, now that we are far enough into this. And I'll call it the quantum of new defaults and new information that, servicers are having to deal with, has diminished. We're finding that the lag dynamic really isn't there in size, so we normalized the IBNR factor.

Are you able to quantify that? I don't remember, what it was last quarter?

I don't have it at my fingertips.

Okay.

I don't have it at my fingertips. But we can give it to you off-line.

Okay. And then last, more of a strategic question. The company has remained underweight 95s, 97s for quite some time. What does it take for that market to become attractive to you? Obviously it's reflected in your delinquency rate. It's reflected in your premium rate. And probably, even in your ILN deals. Is it the asset charges on that business? Is it the risk-adjusted return, at competitive pricing levels or just a desire not to really be, heavily in that marketplace?

Yeah. Let me start with that, just from an overall basis. We don't think we're being too conservative at this point at all. We look at it that this is still a period of unknowns. We've never seen anything of this nature or magnitude. So I think our focus is right now it is not the time to lean in and grow our concentration on 97s below 680 or greater than 45 GTI. This is the time for us to fully utilize and fully flex if you will the underwriting pricing tools that we've worked so hard to develop. So that's our overall thoughts on the 97s and the conservative approach.

Yes. Jeff the other piece that we're finding as purchase volume picks up right 97s are not a refi product. They're just not. But by the time somebody is refinancing, especially in this environment with accelerating HPA they benefited from equity built in their homes and they're getting effectively a mark on their house for purposes of the new down payment consideration and the new LTV. Our 97 LTV volumes did increase in October that we just reported I think we reported 7.7% versus 4.6% in September and 2.3% in August. What's happening there is our purchase volume is increasing. The other piece of that we are monitoring is it certainly appears that this stress event is an earnings event for borrowers and not an equity event for their ownership positions in their homes. And so while we're very comfortable and think we have the appropriate mix right now when we think about that if we were to look at what are the different risk buckets, right? Are we looking at LTV, high LTV, low FICO, high DTI, of those higher LTV is the one that we do expect to perform best through this stressed environment. And as long as that volume can come on with no layered risk, right? No, high LTV borrower with weak FICO characteristics or GTI characteristics that is business that we are comfortable writing and we're taking the share of that business that we think is appropriate and that's reflected candidly in the increase that we saw in October.

Okay. Thanks for the comments.

[Operator Instructions] Your next question comes from Mark Hughes from Truist. Your line is open.

Yes. Thank you. Good afternoon.

Hi, Mark.

I'm sorry, if I missed this, but did you provide the incremental defaults in October? Was that disclosed?

I gave not the incremental it's actually a decrease. So as of October 31 our default population was 13,108 and our default rate was 3.41%.

And then any observations about the new defaults or just ads in the month?

No. I would say more broadly not necessarily just about the month. We have – I'll call it we've got a window into what the waiting room looks like. The number of borrowers who have missed payments but haven't progressed within enough time is not a lapse for them to be included in the default population. And that group that's sitting in the waiting room has been considerably over the last several months. And that's a favorable – another favorable indicator about where credit performance is going. Again heavy caveats of things to change. Obviously, the course of this virus is such an unknown but the data that we have now is really quite encouraging.

And then I'm sorry, if you addressed this earlier as well but the – some of the numbers about home price increases lately have been pretty strong. How much credibility do you give to that when you're looking at the risk of actual claims and the actual losses? We've got the – as you point out an unusual dynamic with the tight housing market prices are up but how durable is that going to be? And how does that influence your thoughts about the potential losses?

Yes. So I would say that historically speaking house price paths – house prices have been the single most important driver of residential mortgage credit performance. If you build as we do a variety of econometric models, it's very, very difficult to I'll call it break credit performance if house prices are strong. And there are historical periods where we can see that. If we look even just at the post dot-com recession from 2000 to 2003, that's a period where unemployment spiked significantly over 60% from April of 2000 to June of 2003. And notwithstanding that spike in unemployment, house prices continue to rise steadily about 30%. If you look at Case-Shiller over that same time period and low and behold residential mortgage credit performed better every single month through that stress period notwithstanding the steady march higher in unemployment, so house prices matter perhaps most of all those macro factors. In terms of our outlook, I'd say we think we've taken an appropriately conservative posture to what we consider from a house price standpoint for both reserving and pricing purposes, right? Future credit performance and expectations factor into our pricing decisions and future expectation of credit performance and house prices factors into our reserving process. For both of those we've taken I would say a far more conservative view around what the future holds than the data that's actually coming out right now and we're very comfortable and think it's appropriate to have that more cautious posture given that we're still early in sort of how COVID is unfolding.

Thank you

I'm showing no further question at this time. I would now like to turn the conference back to the management.

Thank you. Thank you again for joining us. We will be hosting our Annual Investor Day on November 19 virtually this year. So we hope you can join us and that all of you are staying safe and healthy. Thank you again.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.