Radian Group Inc. (RDN) Q3 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you very much for standing by, and welcome to the Radian's Third Quarter 2011 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Emily Riley, Vice President of Financial Communications. Please go ahead.

Thank you, and welcome to Radian's Third Quarter 2011 Conference Call. Our press release, which contains Radian's financial results for the quarter, was issued earlier today and is posted to the Investor section of our website at www.radian.biz. During today's call, you will hear from S.A. Ibrahim, Radian's Chief Executive Officer; and Bob Quint, Chief Financial Officer. Also on hand for the Q&A portion of the call are Teresa Bryce-Bazemore, President of Radian Guaranty; David Beidler, President of Radian Asset Assurance; and Scott Theobald, Executive Vice President and Chief Risk Officer of Radian Guaranty. Before we begin, I would like to remind you that comments made during this call will include forward-looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially. For a discussion of these risks, please review the cautionary statements regarding forward-looking statements included in our earnings release and the risk factors included in our 2010 Form 10-K and our second quarter 2011 Form 10-Q. These are also available on our website. Now I would like to turn the call over to S.A.

Thank you, Emily, and thank you, all, for joining us. Today, I'll provide an overview of our third quarter results and then review progress against Radian's key priorities that we laid out on last quarter's call. Next, Bob will provide details on our financial position before we will open the call to your questions. Earlier today, we reported net income of $184 million or $1.37 per diluted share. This includes the impact of fair value gains of $207 million, particularly in our Financial Guaranty business, and a pretax loss of $78 million for our core mortgage insurance segment in the quarter. At September 30, our book value per share increased to $9.67. Our mortgage insurance loss reserve was $3.2 billion as of September 30 compared to $3.3 billion last quarter and $3.5 billion a year ago. Our reserve per primary default was $25,346, essentially flat to last quarter and up substantially from $22,780 a year ago. You may find these details on webcast Slide 14. Our risk-to-capital ratio, which is an important measure of Radian Guaranty's financial strength for our stakeholders, regulators and customers, was 21.4:1 as of September 30. Additionally, it is important to note that we maintain financial flexibility at the holding company to further support this ratio. More details on our efforts to manage Radian Guaranty's capital position may be found in today's press release. Now I would like to provide an update on the key priorities for our businesses that we introduced last quarter. To start with, we are pleased with the progress we made in the quarter in both our businesses. Let's start with the priorities for mortgage insurance. Priority number one, to write as much profitable new business as we can and to be positioned to gain from competitor pullbacks in the near term as well as from market recovery in the future. In the third quarter, we wrote $4.1 billion of new business compared to only $2.3 billion last quarter and $3.2 billion a year ago. We were extremely encouraged by this new volume, which continued in the month of October with NIW in excess of $2 billion. Based on this momentum, we now expect to write in excess of $5 billion in new business in the fourth quarter of 2011. As Bob said on the last call, each $1 billion of NIW is expected to generate approximately $7.5 million in future after-tax value. Year-to-date, we have added nearly 300 new customers, particularly credit unions, community banks and independent mortgage lenders that have helped diversified our customer base. Two MI companies stopped writing business in the third quarter, providing us the opportunity to write more business in the future, and our industry continued to recapture share from the FHA. We continue to strengthen our sales and underwriting teams in order to support our customers and capture new business. Our industry is steadily increasing its penetration of the insured market as the FHA returns to a more traditional role. Another step in that process is the rollback of the GSE FHA loan limits from their current increased levels back to lower limits. This rollback went into effect on October 1 and, we believe, represents another opportunity to gain share in today's high-quality market. While the rollback is currently being challenged through legislation, we believe it represents the administration's stated goal of ultimately reducing the FHA's role in housing and relying more heavily on private capital sources. Finally, we will also participate in the new HARP program that has expanded eligibility requirements to help more current borrowers refinance their loans into better terms with lower monthly payments. Priority number two, to diligently focus on loss mitigation by quickly paying deserving claims while enforcing our rights on each poorly underwritten, fraudulent or negligently serviced loan. We paid $330 million in claims for the third quarter, reflecting continued foreclosure backlogs and servicing delays, as well as our own claim administration process. We are expecting to pay $1.6 billion in claims this year and estimating $1.3 billion for 2012, and we continue to focus on loss mitigation. You will find the details of our rescission and denial activity on Slide 17. Priority number three, to participate in the regulatory and legislative debate on the future of housing finance, with a goal of ensuring a favorable outcome for the mortgage insurance industry and, importantly, for first-time and low-to-moderate income borrowers. We in our industry trade association MICA provided comments on the proposed QRM definition. We understand that the agencies are reviewing hundreds of comments received on this definition, including support of low down payment mortgage lending from legislators, as well as industry and consumer groups. We expect that it will take some time before the review is complete and clarity is provided. On GSE reform, we expect the debate to linger past the 2012 election. Yet we continue to hear resounding support for private capital in the overall housing finance reform efforts on Capitol Hill. Priority number four, to rationalize our expenses in light of the weak mortgage origination forecast. In the third quarter, we realigned Radian's operational structure in order to complete -- to compete more effectively and reduce costs. We continue to focus the company's resources on sales, underwriting and other core functions to support new business growth. However, the action we've taken better aligns our support services to the lower mortgage market volume environment. These actions are expected to reduce our cash expenditures in 2012 by nearly 10%, some of which may be offset by costs to pursue increased NIW opportunities. Priority number five, to be actively engaged and open-minded about opportunities to create shareholder value through any restructuring or reshaping of the mortgage finance and mortgage insurance industry. We continue to actively monitor the landscape for any new opportunities to create value. Turning to Financial Guaranty. Radian Asset continues to serve as a unique source of capital for mortgage insurance. Despite a challenging environment for the industry, Radian Asset was again profitable on an operating basis in the third quarter. The priorities for our Financial Guaranty business are, priority number one, to provide capital support for our mortgage insurance business. Radian Asset has performed well and has consistently paid dividends to Radian Guaranty and is expected to pay approximately $50 million next year. Priority number two, to diligently manage our existing risk exposure, while pursuing commutations and other exposure-reduction opportunities. Our net par outstanding in Radian Asset has declined 10% from the third quarter of last year. Since 2008, when we stopped writing new business in Radian Asset, we have reduced our Financial Guaranty risk by $43.3 billion or 38%, including large declines in some of the riskier segments of the portfolio. Priority number three, to develop, evaluate and, if appropriate, pursue new business solutions that can further reduce exposure and create shareholder value. In late September, we announced an agreement between Radian and the National League of Cities to explore the formation of a new public-finance mutual bond insurance company. We are working on details of the structure and further evaluating the opportunity. In closing, our progress notwithstanding, we remain concerned by the economic environment, particularly the absence of meaningful recovery in the housing and employment. We cannot change the environment, but we can continue to be steadfast in focusing on our priorities and, by doing so, position Radian to be a leader in our businesses. Now I would like to turn the call over to Bob for details of our financial position.

Thanks, S.A. As always, I'll be updating you on our P&L activity and trends for the third quarter of 2011 and our financial position as of September 30, 2011. The MI provision for losses was $277 million this quarter compared to $270 million in the second quarter and $414 million in the first quarter. The overall loss development during the quarter was similar to the second quarter, with a little higher level of new defaults, a slightly higher cure ratio, a continuation of elevated loss mitigation benefits and minimal change to the composition of default. With a large portion of loans remaining stalled in the late-stage delinquency bucket, we have not gained further clarity on ultimate outcomes and have therefore left our roll rates essentially unchanged. The breakdown of our incurred losses, which is disclosed on webcast Slide 12, now shows: One, the losses incurred on new defaults that arose during the quarter and were still in default at the end of the quarter. Two, the net change in reserves on loans that were defaults at the beginning of the quarter and therefore had existing reserves, and this includes loans that are still in default, loans that have either cured or prepaid and loans that have had a disposition, including claims, denials and rescissions. This line also includes changes to our IBNR reserve for future reinstatements of denials and rescissions. And three, other miscellaneous incurred losses. We made a change to this slide this quarter because we believe the most important takeaway is how much of our incurred loss is related to new defaults versus defaults that were reserved for in the prior period. Similar to the second quarter, the majority of our incurred loss this quarter related to loans that were new defaults in the quarter. Cures in the quarter were as follows: for loans that were 2 to 3 months delinquent as of June 30, 25.7% cured during the third quarter. Of loans 4 to 11 months delinquent, 11.9% cured. And of loans 12 months and greater, but not pending claims, 4.6% cured. These amounts are improved very slightly from last quarter. The dollar amount of loss avoided on submitted claims related to denials and rescissions for the third quarter of 2011 was $165 million compared to $193 million in the second quarter of 2011. These figures are net of the overturns that occurred during the quarter. The amount in our balance sheet representing future expected denials and rescissions is approximately $646 million, and that is before considering our IBNR offset for future overturns. Radian Guaranty's risk-to-capital ratio is estimated to be 21.4:1 as of September 30. The primary drivers of the changes to our risk to capital this quarter were the MI operating losses, which reduced capital, partially offset by statutory income at Radian Asset, driven by a significant loss reserve reduction on a TruP CDO and on our public finance exposure. As S.A. mentioned, effectively managing our capital position is a priority in order to continue to increase our level of profitable new business writings. We saw improving credit trends on several Financial Guaranty asset classes during the quarter, including on our TruP CDOs. The reduction of GAAP loss reserves, primarily relating to public finance credits, caused a negative loss provision of $27 million this quarter. The one problem CDO of ABS, which we have been disclosing for some time, is expected to experience interest shortfalls in the first half of 2012, which would require a statutory loss reserve upon this default. Much like what occurred in the first half of the year, the change in fair value of derivatives and other financial instruments was primarily impacted this quarter by a significant widening of Radian's own credit spread, contributing to a net fair value gain for the quarter totaling $207 million. The total of our September 30, 2011, balance sheet amounts related to our derivative exposures and consolidated transactions is now down to a net GAAP liability of $245 million, which is approximately $144 million less than our current estimate of the net present value of expected credit loss payments as we show in webcast Slide 8. This means that if our projections are accurate, pretax book value will be reduced over time by approximately $1.08 per share. This differential can be potentially reduced or eliminated by commuting or terminating certain exposures at a payout that is less than the net present value of expected credit loss payment. We always look for such opportunities if they make economic sense. For operating EPS purposes, premiums earned during the quarter from derivative transactions is $10.3 million and the year-to-date figure is $31.7 million. Our holding company cash resources are approximately $600 million after giving effect to amounts we can redeem from our CPS securities and after accounting for approximately $50 million of contributions to our MI subs this quarter. If we execute any significant commutations for loss mitigation purposes, this could accelerate the related statutory capital charge and could result in capital contributions to Radian Guaranty. Our next material holding company obligation will be the principal maturity of $250 million of debt in 2013. We'd now like to turn the call back over to the operator.

[Operator Instructions] And our first question comes from the line of Chris Gamaitoni with Compass Point. Christopher Gamaitoni - Compass Point Research & Trading, LLC, Research Division: Just regarding the cash at the hold company of $600 million, what was that last quarter?

We said last quarter that we expected the available cash at year end to be $630 million, and that's barring any large contributions due to unforeseen events. Christopher Gamaitoni - Compass Point Research & Trading, LLC, Research Division: Right. But what was it actually last quarter?

Well, the actual number is going to be subject to payments that we made. We made intercompany tax payments in the quarter, so I'm not sure that's as relevant as the $630 million that I'm talking about. Christopher Gamaitoni - Compass Point Research & Trading, LLC, Research Division: Okay. I guess I can ask another question. Did you dividend any cash to Radian Guaranty from the holdco during the quarter?

Not during the quarter, but we said that we expect to pay down $50 million to MI subs in the fourth quarter, and that includes Radian Guaranty and other subs. Christopher Gamaitoni - Compass Point Research & Trading, LLC, Research Division: And what is the DTA impact of the NAIC accounting change on your capital levels?

It's almost nothing. We have only $7 million of admitted DTA on a statutory basis, so the impact would be negligible. Christopher Gamaitoni - Compass Point Research & Trading, LLC, Research Division: Okay. And just on the corporate CDO side, is there any exposure in any of those to the recent MF Global bankruptcy?

No, there isn't.

And our next question comes from the line of Mike Grasher with Piper Jaffray.

S.A., you mentioned the trends in October for new insurance written. Is there any way to give us an update in terms of delinquency or filed claim trends?

You mean on the whole book? Bob?

Yes. In terms of October?

Yes.

The -- yes. Preliminarily, it looks like the count of delinquencies is down slightly in October. And in terms of claims, I think we're seeing a continued slowdown for the reasons that we have noted.

Okay, Bob. And then also, S.A. mentioned the $1.3 billion, I think, in 2012 for paid claim activity. Bob, is there any seasonality that we should model in for that?

No. I don't believe so, Mike. I mean, I think we're looking at a situation where the claims received over time have come down, and that is the reason for the overall decrease. But in terms of the number you saw during the third quarter, that is -- that's low because of the backlog situation. So we do expect it to tick back up in the short term.

Okay. And then just more question. S.A., you spoke about looking at the different alternatives for the Financial Guaranty and the relationship with the National League of Cities. Is there any impact? Or are you sort of watching out to the side on what S&P may come out with the bond rating criteria?

Mike, as I mentioned, we evaluating the opportunity. Really, there are many factors that go into that evaluation process, including the S&P's new ratings criteria, as well as determining whether there is a demand for -- on the part of issuers for guarantees. Dave, would you like to add anything to that?

I think that covers it.

Okay. And then just with regard to the sort of conversations with issuers and the demand there, can you share with us any feedback?

Well, thus far, we've gotten positive feedback. It's anecdotal, and we are evaluating the potential on a more systematic basis.

And our next question comes from the line of Mark DeVries with Barclays Capital.

Yes. Bob, if we're trying to think about the capital at the holdco that's available to dividend down to the MI subs, should we think about the $600 million less your $250 million maturities and any kind of debt service you have between now and then? Is that roughly the way to think about it?

Well, the debt service is covered under our expense sharing arrangements with the subs. But certainly, the $600 million is available to contribute to the operating company, and we do have the maturity in February 2013.

Okay. Is there anything else to think about it or is -- so we should think something in the area of $300 million is potentially available?

Well, I think, at this point, $600 million is available. We have that flexibility, and we're pointing out the potential ways it could be used.

Okay. And what types of options are you thinking about pursuing to potentially reduce the additional risk at Radian Asset?

Well, there are -- I mean, there are several ways. I think, naturally, things are going to be running off, particularly the structured book, over the next few years. And then you've seen us do commutations proactively, and that's certainly something that's on our mind and something that we pursue. As well, many of the counterparties have the ability to walk away or reduce the exposure that way. So it could be coming from a number of different alternatives.

Okay. Are there many commutation opportunities left? I would have assumed that you would've at least gone after the kind of the low-hanging fruit initially.

Well, there are always opportunities, and we evaluate the economics of them. So I think there are continuing opportunities.

And then finally, the -- let's see, your cumulative rescission rate had been coming down pretty steadily since peaking in 2Q '09, but at least the last 2 quarters that we have data on has been kind of edging up. Is there anything you can point to as a change in trend there that's notable?

This is Teresa. We've just continued to now look at every file, and we're seeing a lot of those come through from '06 and '07. And so as a result of that, we've just seen more rescissions as a result of that. But we haven't sort of changed the process that we use for reviewing those claims.

One way to look at it is if the '06 and '07 books continue to perform poorly on an elongated basis, that also creates more rescission opportunities.

And our next question comes from the line of Jon Evans with Edmunds White Partners.

Could you just talk a little bit about -- you addressed being able to pay off the bonds in '13. I guess, can you help us understand, Bob, why you wouldn't be buying them back in the open market right now? Just -- they're so cheap. That seems like that'd be a positive for your capital. Can you help us understand that? You did that last time.

All right. I mean, today, we have the flexibility with the $600 million, and it's certainly something that we continue to evaluate. We understand where the market is on the bonds, and it's a potential opportunity. And we have to evaluate all of the alternative uses for that capital.

The other question I'm curious is, can you just talk to us about refinancing, then? That alone seems like that's putting a lot of pressure on your stock not being able to get to book value because people point that you can't refund that debt like PMI did, et cetera. I mean, will you try to take it out before it's due? Will you do something, or will you raise additional capital? Or will you just use the capital that you existingly have?

Well, I think -- again, today, we have that flexibility. Refinancing is something we'll evaluate like all of the other options. So there's no definitive plan right now except we look at the options and we try to evaluate what's best for the company, and we understand that all of those things are alternatives.

And regarding the capital question, currently, we're not looking to raise capital because we have that $600 million remaining at the holdco to support our MI business. That said, though, we're operating in an uncertain environment. And there may be circumstances in the future where we would consider raising capital because we're writing more business, and we continue to be in this uncertain environment. But we would do so only after thoroughly evaluating other alternatives and all potential consequences, and then do so if we believe it's in the best interest of the company and our shareholders.

Got it. And then just one last question relative to the writing. So you're going to see what you said is about a 20% sequential increase in your new writings from the third quarter to the fourth quarter. I know this is early, but is there any way to think about the March quarter? Would you sequentially grow it then again, or is there a seasonal downtick? And how much share do you think you're picking up out of the PMI business, them not being able to write?

It's hard to project out, because there's a lot of factors at play. And I'll let Teresa talk about whether we're gaining share, which, I believe, we are. But the industry forecast for next year is down somewhat from this year. And typically, from a seasonality point of view, particularly the originations market tends to be more depressed in the first quarter and then picks up in subsequent quarters. And we're not -- in this environment, barring the HARP successes, we're not seeing a lot of refi activity. But we believe that -- the forecast, by the way, if you believe the MBA forecast, picks up as we go into 2013, quite significantly on the purchase side. But that said, I'll let Teresa answer the question how we are performing competitively.

Well, the first thing I would say is one of the factors going into 2012 that's important to note is the change in the loan limits. So while we won't have seen that in the third quarter numbers, it's possible that we could see some benefit from that in the fourth quarter going into the first quarter of next year. Now the -- their -- that rollback on the FHA loan limit happened on October 1, and there are efforts underway to try to re-extend the FHA loan limits. But I think that would be one of the biggest factors that could give the overall MI industry a lift. I think that we continue to develop very good relationships and collaborative relationships with our customers. We've grown our customer base and diversified it. And I think that's all contributing to us growing our share. As we -- as I think many of you know, the -- it's difficult to get sort of the exact share numbers anymore with 2 of the competitors not reporting those numbers. So -- but in terms of sort of the amount of NIW that we're writing and what we expect, we do believe our share is growing and that we are seeing some benefit from PMI and RMIC, in addition to just our overall relationships and growth of our business.

And we've said on our priorities, this is -- this happens to be a very important priority for us. We've expanded capacity, added sales people, increased our customer base significantly, and we are prepared to take advantage of the opportunities that the market presents itself, both as the FHA pulls back, as well as there are opportunities to gain share from the customers and hopefully, over the long term, as the mortgage market returns to more normal and higher volume levels.

And our next question comes from the line of Matthew Howlett with Macquarie.

As always, thanks for the update on the first lien domestic portfolio profit projection. I mean, it's been coming down the last several quarters. Obviously, it was down $200 million this quarter. What's been driving it? Has it been the expected frequency on the sort of current book of business, because you haven't really moved the reserves on the defaulted book of business?

Yes. It's really both, Matt, because we drive this model from economic forecasts. And the economic forecast we use, economy.com, has kept sort of delaying the recovery and pushing it out further once it even begins. So when we apply that to our model, that increases the frequency of our book and, thus, increases the losses. So it is a reflection of that economic forecast that changes in that embedded value.

Got you. I follow you. And then just a more specific question. There's obviously the difference between -- I know it's on a present value basis, but you expect $4.6 billion of losses on the book and you have $3 billion of reserves or so. The difference, the $1.6 billion difference, what's the timing of that, I mean, based on your default curves? Obviously, if it all happens in next year or next 6, 7 quarters, I mean, you're not going to be profitable. If it happens over a longer period of time, you could turn it. And I guess the question is one of your competitors is now saying, "We're not going to turn profitable until 2014." They actually pushed it out a year. I know this competitor happens to be in runoff. You guys are different. But what's the timing of that $1.6 billion difference? I mean, can you give us any indication on when you think you could turn the corner to profitability?

It's difficult, Matt. And when we do, we will certainly be out there with it. I think we've given you some indication, the $1.3 billion expectation for claims paid for next year. The number that we're putting out there are really the claims numbers. The hard part is to turn that into incurred. That's going to be very difficult. I would say the timing is such that it's going to be over several years. But in terms of what's next year, what's next quarter, that's the real difficult part that we've just been -- it's just been very, very hard to project, and therefore, we're now out there with projections on it.

Got you. And then, I mean -- I know one of your competitors has put that out. I mean, is there anything to think that your book is different, that you guys are writing business? I mean, is there something that -- I mean, are all players the same in the industry? I mean, is there any way to think that your portfolio is performing better than the rest of the space?

I mean, it's hard -- other than comparing delinquency rates and things like that, it's hard to compare. But we don't know of a competitor that is way outside the norm in terms of the portfolio. It's hard to imagine that we're not all somewhat similar. We all wrote a lot in '06 and '07, et cetera. Obviously, there's a new entrant that this doesn't apply to. But I do think that, over time, we've seen the new default levels come down. And we expect that to continue, and we're going to need that to continue for the numbers that we're projecting to come true.

Got you. I mean, you guys did -- you guys are the only ones that do provide the incremental profit that you're adding from the new business you're writing. So that's -- I think that's one differentiating factor that, at least, Old Republic doesn't have at this time. The last question is just on the CDO of ABS. You mentioned that it's going to start deferring interest next -- in the beginning of 2012. What's -- I mean, is the reserve that you set up for that, is that similar to what you have established on a GAAP basis? And I guess how much is that going to eat into your statutory surplus at Radian Asset with that reserve that you'll have to take?

Yes, I mean, the GAAP is -- it's a fair valued for GAAP. So there's been a liability up there for GAAP. There still is. For statutory, it's going to be -- if and when it defaults, it will be a probability weighted. So it's a kind of complex formula, but it's probability-weighted cash flows, essentially. And the -- some of the inputs are, you know the size, which is $450 million, and you know that we're saying that the big payment or the principal payment we don't expect to make until at least 2036 or maybe much later. So there would be a present value impact of that involved. But we haven't put a number out there because it is sort of a complex probability weighted, based on the situation when a default would occur.

Got you, great. And will this impact at all? Or do you know at all if it will impact the sort of annual dividend that Radian Asset upstreams to the parent typically in the summer?

Well, the $50 million that S.A. put out there was our expectation of the dividend we will pay in 2012, and certainly, we're aware of the situation.

And our next question comes from the line of Douglas Harter with Credit Suisse. Douglas Harter - Crédit Suisse AG, Research Division: I was wondering if you could talk about the development of sort of statutory losses in the coming quarters as it compares to GAAP? Just to get a sense as to how statutory capital for the MI should look.

Yes. I mean, if you look at the MI segment, that's the statutory. It's fairly close. I mean, the losses are fairly close to premium. So it's -- I think it's a fair representation. Now you're going to get -- the big differences are the fair value stuff, which is mostly on the FG side, so you can really back that out. And then you are going to have some impact from the investment portfolio, depending on what it is and how it's treated. But I think on an operating basis, you can look at by segment and get a fair representation of what's going on, on a stat basis. And on Financial Guaranty, if you eliminate the fair value stuff, you also get a fair representation. There are differences, but you'll be in the ballpark. Douglas Harter - Crédit Suisse AG, Research Division: Great. And just to clarify, that $600 million of parent company cash, that already reflects the $50 million contribution.

It does, yes.

And our next question comes from Jack Micenko with SIG.

I want to revisit the market share topic a bit. Obviously, one of the stated goals is to continue to grow and write profitable business as best you can. You took what seems to be a lot more share in your forward guidance, some share as well from one of your competitors. So I'm looking at the FICO runs on a quarter-to-quarter basis. Is it -- are you pricing things more aggressively in light of the cost saves you've taken on and the returns are the same? Are you going down the FICO ladder a little bit? Can you talk a little bit about what your -- what's driving some of the incremental volume there, on the new business side?

Sure. I mean, I think it's a number of things. I think we're pretty priced competitively in the market and from a guidelines perspective. I think a lot of it has been we refocused how we were working with customers at the beginning of this year, and we actually split our sales force into sort of 2 segments. And one area was focused on growing share with existing customers, and we became very focused on that. And I think we've been successful in that regard. The other was to not only sign up new customers, but also to make sure that we started generating new business from those customers. So I think that we're seeing that. I think that also we've tried to be very good in terms of how we handled what was going on with our competitors in the industry. And we have indications that we may have benefited from sort of how we handled what was evolving in the industry, in that customers viewed us favorably in that regard as well.

But you have to look at this also at -- over the long term. While you're seeing these numbers now, this story has really been unfolding over the long term. Historically, Radian's share was concentrated on the 10 largest players -- lenders in the market, and we deliberately started the process of diversifying our customer base. And through the entire downturn, we've consistently been adding sales capacity and production capacity, and that has been happening year after year. That said, the origination numbers tend to go up and down every quarter, and they may go down and up as we move along. The secular trend, in terms of the volume we've written, has been up. But I wouldn't place a lot of reliance on quarter-to-quarter numbers because those could go up and down. We are committed to, on a secular, long-term basis, continuing to place a high priority on business.

Yes. And I would say that I don't think there's been any change in our risk appetite from that point of view. It's just been on making sure we do the best job at capturing profitable business.

Okay, great. And then just a follow-up question on the operating expenses. In light of the headcount reduction you had in the quarter, the numbers were a little higher. And I think in the prepared comments, you said that number was going to trend down 10% year-over-year with some addback for some sales development. Did I understand that correctly?

That is correct.

And our next question comes from the line of Steve Stelmach with FBR Capital Markets. Steve Stelmach - FBR Capital Markets & Co., Research Division: Most of my questions have been asked, but, S.A., just taking a step back a little bit. You mentioned among the priorities in the mortgage insurance business is to be active in the dialogue of restructuring of the mortgage finance and MI industries. Could you just give us a flavor of what you expect the mortgage market to look like and the role of MIs as we go forward. How that -- -- expect it to change or stay the same, or the opportunities that you guys have or prospectively?

I mean, first of all, the QRM process is going to unfold. And while everybody looks at the QRM process in terms of -- and the DSC reform process in terms of how it could narrow the base of business we do, and that is certainly possible at the top end, there's also conversations on the Hill where tax -- where there's a indication that the government may reduce the support from 80% LTV government guarantees, from 80% LTV to a lower level, say, 70% and move downwards. While we don't know what's happening, we monitor the situation, and we want to be alert to those kind of opportunities happening. And I'll let Teresa, who's closer to the Hill, to address that part. But also, in terms of that priority, we're also focusing on opportunities to pick up share of business from other players and so on.

There -- this is a very fluid situation. And I think what we do here is that there's -- while you're seeing bills coming out, including the one that Congressman Garrett just released, that there's not an expectation that we'll actually see legislation until 2013. Having said that, in our discussions on the Hill, there's -- continues to seem to be a lot of support for the re-emergence of private capital, including MI. So we're hopeful in that vein that we will see a role and, potentially, an expanded role for MI going forward. Steve Stelmach - FBR Capital Markets & Co., Research Division: Okay. And is there -- and even outside the context of QRM, it seems like lots of financial holders or holders of financial risk are unwilling or unable to take mortgage credit risk. I mean, it seems like there's a opportunity beyond QRM. Would you agree with that?

I think that's possible. I think one of the issues has been what's the size of the QRM and then what's the size of the non-QRM. And there's been a lot of discussion in the industry around the fact that if you had a significant base of non-QRM, there would be opportunities there as well. So we are looking at that to make sure that we have an opportunity to play on both sides of that, if you will.

And our last question comes from the line of Mike Grasher with Piper Jaffray.

Just, Bob, wanted to ask about and maybe an update on the performance of the non-CDO RMBS portfolio. Looks like the subprime policies have moved around a little bit, fewer policies there. Just wondering if there's any change in reserve activity or the underlying performance of the portfolio.

Yes, this is Derek Brummer. There aren't any material changes in performers in the RMBS. I think our GAAP claim liability this quarter is coming down marginally, but otherwise, pretty stable.

And please continue with any closing remarks.

Okay. Thank you, all, for joining us. And like we said on the call, while we cannot change the economic environment and particularly the slow housing and unemployment levels, we remain focused on our priorities. Look forward to talking with you next quarter.

Thank you, ladies and gentlemen. That does conclude your conference for today. Thank you very much for your participation and for using the AT&T Executive TeleConference. You may now disconnect.