Radian Group Inc. (RDN) Q3 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to Radian's Third Quarter 2013 Earnings Call. [Operator Instructions] And as a reminder, this conference is being recorded. I'll now turn the conference over to Emily Riley, Senior Vice President of Investor Relations and Corporate Communications. Please go ahead.

Thank you, and welcome to Radian's Third Quarter 2013 Conference Call. Our press release, which contains Radian's financial results for the quarter, was issued earlier today and is posted to the Investors 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 Derek Brummer, Executive Vice President and Chief Risk Officer of Radian Group. 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 2012 Form 10-K, as well as subsequent quarterly and other reports and registration statements filed with the SEC. These are also available on our website. Now I would like to turn the call over to S.A.

Thank you, Emily. Thank you, all, for joining us and for your interest in Radian. Today, I will provide highlights of our third quarter financial results and share my thoughts on the topics and trends important for our company and our industry. Following my remarks, Bob will cover the details of our financial position. Earlier today, we reported a net loss for the third quarter of 2013 of $13 million or $0.07 per diluted share. This includes minimal fair value and other financial instrument gains and minimal losses on investments. Results for the quarter also included a $22 million incurred loss initially booked for the Freddie Mac agreement announced in August and approximately $17 million of variable compensation expense directly related to the increase in our stock price during the quarter. The results for the quarter compared to net income for the quarter ended September 30, 2012, of $14 million, or $0.11 per diluted share, which included combined net losses from change in fair value of derivatives and other financial instruments of $42 million and net gains on investments of $85 million. Book value per share at September 30, 2013, was $5.17. I am pleased with Radian's improved financial performance this year and the generally positive trends we're seeing in the economy, housing market and overall business environment. Here are a few important highlights from the third quarter. First, we continued to write a high volume of new mortgage insurance business in an extremely attractive market, adding to the volume of business we have written after 2008. This business is projected to be a major driver of future profitability for Radian. In July, we broke a company record, writing the largest monthly volume of flow business ever before in Radian's more than 35 year history. And this quarter's $13.7 billion of new flow business was the company's second highest quarterly volume. Second, this high volume of new business improves the credit profile of our portfolio. In the third quarter, the high-quality books of mortgage insurance business written after 2008 represented 57% of our total portfolio. If you combine this book with loans that have completed the HARP refinance, it represents more than 2/3 of our primary mortgage insurance portfolio. In addition, the most problematic 2006 and '07 books are now down to less than 15% of the total portfolio. You can see the breakdown on Slide 19 of our webcast presentation. Third, we entered into an agreement with Freddie Mac in August that eliminates our claim exposure on 14,342 loans and helped reduced our total primary delinquent loans by 31% from the third quarter of last year. Fourth, Slide 17 shows that for the first 9 months ended September 30, 2013, the primary earned premiums, less incurred losses from our 2009 and later MI vintages are positive and far exceeded the comparable negative sum from the 2008 and prior vintages. In fact, the $238 million of premium earned for the 9 months of this year was greater than the $210 million of premium earned in all of last year. Fifth, the MI incurred loss ratio was 76% in the quarter, which represents another positive trend which we have seen for the last 3 quarters. And finally, since 2008, we have successfully reduced the exposure in our financial guaranty business by 77%, including many of the riskier segments of the portfolio. Radian maintained strong holding company liquidity of approximately $700 million and Radian Guaranty's risk-to-capital ratio was 19.8:1 at September 30, 2013. We continue to expect to maintain a risk-to-capital ratio for Radian Guaranty of 20:1 or below while also preserving the strong level of holding company liquidity. Bob will provide more detail on our capital contribution in the quarter and future expectations. The details of the new GSE eligibility capital requirements for MI are still unknown, but we continue to hear that they will be issued by year end. We fully expect to have the ability to comply with the new requirements within the implementation timeframe. We have written a total of $122 billion of new mortgage insurance business from 2009 through October, which we expect to produce attractive returns. Our primary insurance in force now stands at $159 billion compared with $135 billion a year ago, which is an increase of 18%. This insurance in force growth represents the success we've had at Radian in driving new high-quality mortgage insurance business over the past few years. We have retained our business from the nation's largest lenders while adding new customers, including credit unions, community banks and independent mortgage lenders. In fact, 26% of our NIW in 2013 came from customers new to Radian in the last 2 years and the pipeline of prospective customers remains strong. Yet there are challenges in today's business environment that may impact near-term volume. While the improvement in the economy have many aspects of our business, it also caused interest rates to rise above the record low levels we've seen in the past few years. And those higher interest rates have recently driven a significant decline in refinance volume, a trend we expect to continue into 2014. It is important to note that this interest -- increase in interest rate is likely to increase our persistency rates which will help us grow our insurance in force. On average, every 1% increase in persistency translates into approximately $1.6 billion of insurance in force remaining on our books each year. Experts view the future demand for homes, and therefore, mortgage loans to be strong as the number of U.S. households owning a home is expected to accelerate. Much of this growth will be driven by demographic groups, including the Hispanic community seeking to fulfill their dream of becoming homeowners. According to the Harvard Joint Center for Housing Studies, Latinos are expected to contribute 40% of the 17 million new households projected to be formed from 2010 to 2025. In order to support this growing population of first-time homebuyers, Radian entered into a 2-year exclusive partnership last month with the nation's largest industry trade group for this community, the National Association of Hispanic Real Estate Professionals. This partnership allows Radian to work directly with the association to provide its membership with information, tools and resources to make the right choices for sustainable homeownership. Turning back to market trends. The decline in refinance activity, combined with the typical effects of seasonality in the fourth quarter, will most likely meaningfully reduce total national mortgage origination volume and thus Radian's NIW in the fourth quarter. While Radian's monthly volume in October remained relatively strong at $3.5 billion, industry experts forecast a smaller overall origination market next year. We also anticipate increased competition in our industry from new and existing MI companies. These headwinds will be partially offset by growing purchase market where MI penetration is about 3x to 4x greater than for refi loans and with more lenders choosing private MI over FHA. The positive factors of higher purchase volume and increased share from the FHA is illustrated by our industry's penetration of the insured market of 12% to 13% in the third quarter. This represents an increase of 40% from the second quarter of this year and an impressive 70% since the third quarter of last year. We believe that 1/3 to 1/2 of the business that the FHA is writing today meets our credit standards, and therefore, represents additional new business opportunity in the future. Turning to the business environment. Competitors recently reduced their borrowed-paid mortgage insurance premiums by 5 basis points, which we promptly matched. Given the credit quality of today's new business, we are comfortable that these premium rates will provide us with attractive returns. Now I'd like to summarize the progress made against 3 important priorities for Radian: Writing new mortgage insurance business, mitigating losses in our mortgage insurance portfolio and reducing our financial guaranty exposure. First, we wrote $13.7 billion of new mortgage insurance business in the third quarter, which was the second highest quarterly volume in Radian's history. Second, for the 9 months ended September 30, 2013, the primary earned premiums less incurred losses from our 2009 and later vintages are positive and far exceed the comparable negative sum from the 2008 and prior vintages as shown on Slide 17. We are encouraged by this trend. Next, we successfully completed a transaction with Freddie Mac to help reduce the total number of primary delinquent loan by 17% from the second quarter of this year and 31% year-over-year. The agreement also have reduced the default rate on our primary book in the third quarter to 7.8%. Finally, our financial guaranty business serves as an important source of capital for Radian Guaranty. We have successfully reduced our financial guaranty exposure from a peak of $115 billion in 2008 when Radian Asset stopped writing new business to $26 billion in the third quarter of this year. Over the same period, statutory surplus increased from approximately $950 million to $1.2 billion. In addition to statutory surplus of $1.2 billion as of September 30, 2013, Radian Asset had additional claims-paying resources of $380 million, including $256 million of contingency reserves. We stay actively engaged with key policymakers in Washington on the legislation and regulation affecting our industry. Overall, we continue to hear resounding support on Capitol Hill for a healthier balance between the public and private sectors in today's mortgage market, which is extremely positive for our industry. Now I would like to turn the call over to Bob for details of our financial position.

Thank you, S.A. I'll be providing with our P&L activity and trends for the third quarter 2013, our capital and liquidity positions as of quarter end and some updated expectations regarding 2013 and beyond. The MI provision for losses was $152 million this quarter compared to $136 million last quarter and $172 million a year ago. Note that this quarter's incurred loss includes approximately $22 million initially booked in conjunction with the Freddie Mac agreement. Incurred losses continue to reflect improving delinquency trends and declining claims submission. Our loss ratio is also benefiting from increasing premiums from our growing book of business. There were no major assumption changes in our loss reserve estimate this quarter. One trend that we watch closely is newly submitted claims since this can be an indicator of changes in the economic environment and/or foreclosure and short sale activity. We've added disclosure on Slide 25 that shows the quarterly trend on newly submitted claims, demonstrating that they have been stable or down consistently for the last few years and we expect that trend to continue. Paid claims for the quarter were impacted by the Freddie Mac agreement. Our $255 million payment at closing in substance accelerated a set of claims. While claim submissions on loans contained within the agreement will be processed in the normal course over the next several years, we will not pay anything further on them, thereby reducing the ongoing run rate of claims paid compared to what would have occurred. Our revised full year total claims paid estimate is $1.5 billion and we expect 2014 claims to be significantly lower than 2013 but to remain elevated compared to historical levels. The average claim amount picked up this quarter compared to the second quarter due primarily to a higher average coverage percentage on claims that were paid. We believe that the average claim amount for the 9 months this year is a reasonable proxy for the future average claim amount, although quarter-to-quarter levels tend to bounce around a little. The Freddie agreement and other proactive efforts have enabled us to reduce our primary pending claims inventory by 30% from 17,625 at year end 2012 to 12,363 as of September 30, 2013. And we anticipate that pending claim inventory will continue to decline. Our September 30, 2013, loss reserve assumes $291 million for future denials and rescissions. Our IBNR reserve assumes $286 million of future denial and rescission overturn. These 2 numbers are not specifically related. One is an estimate of future net denials and rescissions on our delinquent loans and the other is an estimate of future overturns of previous denials and rescissions. However, the net amount of new rescissions and denials in any given period and the amount of overturns are the numbers that you see every month in our default roll-forward. Single premium business written out for 2008 has continued to perform extremely well in 2013 with loss ratios similar to those for monthly premium business. As expected, single premiums have fallen as a percentage of our new business to 29% in the third quarter and we expect those levels to continue to fall as the purchases start to dominate the mortgage origination market and as QM is implemented. Although we expect mortgages originated in 2012 and '13 to have a relatively long lives, we saw in the 2009 through 2011 vintages that interest rate movement that can cause shifts in prepayment activity are very hard to predict, which is the reason we like to write a representative mix of single premium business. Beginning April 1, we reduced the quota share percentage for new business ceded to our external reinsurance partner from 20% to 5%. That has helped reduce the amount of ceded premiums written significantly in the second quarter and third quarters. We are re-evaluating the 5% quota shares ceding percentage go-forward and we expect to make a decision around year end. In addition, we will have the option to recapture a portion of the ceded quota share risk at year end 2014 and 2015. Minimal fair value gains for the quarter were caused primarily by an improvement in collateral spreads, offset by a further tightening of Radian's credit spread. Slide 8 depicts our current balance sheet fair value positions, along with the expected net credit losses or recoveries and fair value exposures. Based on our projections, we expect to add approximately $314 million with just under $2 per share to pretax book value over time as the exposures mature or are otherwise eliminated. That number is derived by taking the net balance sheet liability of $255 million and adding that present value of expected credit loss recovery of $59 million. During the third quarter, operating expenses were impacted by approximately $28 million of long-term incentive compensation expenses. The comparable expense in the first quarter was $38 million and in the second quarter was approximately $19 million. This expense is driven primarily by stock price changes which impacts the fair value of this cash-settled awards. Approximately $17 million of this quarter's expense was the direct result of Radian's stock price increase of $2.31 during the quarter. The potential volatility in our results associated with stock price changes will be tempered after June 2014 when approximately half of the awards mature and substantially all of such remaining awards mature by June 2015. The balance of our equity incentive awards are valued at grant date and amortized over their lives in a much more predictable manner. Our risk-to-capital ratio ended the quarter at 19.8:1. We had another close to breakeven quarter of statutory results, grew our risk in force significantly and made a capital contribution this quarter of $115 million from Radian Group to Radian Guaranty. The math on this risk to capital this quarter is that we added approximately $2 billion to our net risk in force, which at 20:1 requires $100 million in incremental capital to support it. Our current plan is to manage our risk to capital below 20:1 and we have substantial resources with which to do so. With expected market contraction due to seasonality and the decline in refinance volumes, it is unlikely that we will grow risk in force at the same pace in the fourth quarter, but we still expect to grow and we would likely require a capital contribution in the quarter to stay below 20:1. Current holding company liquidity is approximately $700 million. We have $55 million of debt maturing in June of 2015 with the balance of our outstanding debt due in 2017 or later. I'd now like to turn the call back over to S.A.

Thank you, Bob. Once again, I'm pleased with Radian's improved financial performance this year and the generally positive trends we are seeing in the economy, housing market and overall business environment. Our success in having written $122 billion of new high-quality MI business from 2009 to October, which have improved the composition of our mortgage insurance portfolio and fueled our primary insurance in force growth, will drive Radian's future earnings. Now I'd like to open the call to your questions. Operator?

[Operator Instructions]. Our first question will come from Geoffrey Dunn with Dowling & Partners. Geoffrey M. Dunn - Dowling & Partners Securities, LLC: Can you talk a little bit -- well, talk about what you think the return impact is of your recent price cuts? If you can get as specific as possible, I'd appreciate it. And then as we look at the industry moving forward, competition seems like it's only going to pick up as you have a couple new entrants come in additionally. How do we gain confidence in -- if we don't see pricing competition on what does effectively remain kind of a commodity product out there? And just in general, how do we get confidence that we don't quickly compete away the returns you've fought so long to recapture.

Jeff, with regards to the returns, the impact is small. If you think about 5 basis points on part of the business, it's really small. We're still looking at mid to upper teens ultimate returns on the business at the credit quality that we're currently writing. And we don't think it impacted significantly.

Yes, and Jeff, we -- while we can't predict the competitive environment in this future, we do know that some of these price cuts short of our short lift so we're hoping that it will be sort of a reasonable way that the industry reacts going forward in terms of preserving reasonable and attractive returns. And as Bob said, the credit quality of the business is very high. It also is interesting because, obviously, one of our areas of focus is gaining share back from FHA and S.A. talked in his remarks about how there's still a significant amount of FHA business that is in our credit box. And the one, I guess, silver lining about this price change is that it does increase, we believe, the competitiveness with FHA. Geoffrey M. Dunn - Dowling & Partners Securities, LLC: Okay. And somewhat related, it's still a small piece, but over the last couple of quarters, you've seen the mix of new business in the 95 and above area and the 679 and below area increase. I think the sense has been that there's not much to do there because of the LLPA impact and restriction on really getting a lot done. But is that an up-and-coming space? Do you see that business continue to ramp up and potentially providing some premium yield to offset the rate cuts on an overall average basis?

Yes. I mean, I think that is really a direct result of what we're seeing in terms of the FHA price increases and also a focus on lenders trying to make sure that they're putting borrowers in the best product. And often, that's now in MI -- private MI products instead of FHA. So I think that's why we've seen that increase at the 95 level with slightly lower FICOs, but still very strong FICO scores. I would expect to see that continue at this point.

Our next question is from Mark DeVries with Barclays.

First quick question, Bob, do you have an estimate on likely capital contribution in 4Q?

Not specifically, Mark. But I think I led you to believe that the growth in risk in force is not expected to be the same as it was and then if you look at the math, it will be something south of $100 million.

Okay. Along those lines of the growth in the risk in force, are you -- I know you provided kind of your October NIW. Do you have a sense for how lapse rates are trending? And clearly, volumes will be down this quarter, just for seasonal reasons and also the refi, but I assume lapse is also dropping. Do you have a sense for kind of how the pace in growth and risk will change with the impact of seasonality and lower refi.

Yes. I mean, there's so many different parts to the equation that's very difficult. I think that we expect persistency rates to increase. That's clear. Will that fully offset the loss in volume from refis going away? Probably, unlikely, but somewhat offset for sure. And then you've got the other dynamics of the market size and penetration kind of all offsetting each other. So I think we expect to grow and continue to grow. The third quarter was a very strong NIW quarter, so the growth in risk in force was really at a high-level this quarter.

Okay, and just one other -- around that last question. How's -- how are persistency rates on the HARP loans comparing to your broader population? I would assume you're seeing even slower class rates or higher persistency on those. Is that a fair statement?

It sounds fair. We don't have the specific details in front of us, but it sounds fair, sure.

Okay, what percentage of your book now is -- or loans that have been HARPed?

It's in the 11% to 12% range.

It's about 11% to 12%, yes.

And then, finally, could you comment on your Puerto Rico exposure? I think you've, for the first time, put the number on the size of it in the release. Can you just talk about kind of what your expectations are around that exposure and what, if any, reserves you have against it?

This is Dave Beidler. We added the Puerto Rico disclosure as you point out at the website because of the recent market concern around that credit. We've been closely monitoring it for years because of the economic headwinds that the credit faces. But having said that, the government has taken a lot of positive proactive steps and I think can be differentiated from many of the other headline grabbing public finance credits which have engaged in a lot of saber-rattling and more negative actions from our perspective. We believe overall that our exposure at approximately 2% of our total exposure is really quite reasonable in any likely scenarios. And at this point, we are projecting losses, but we think that our exposure is quite natural.

Got it. I assume, other than the fact that you're not projecting losses, you haven't set aside any reserves against that, correct?

That's correct.

We'll go next to Jack Micenko with SIG.

I wanted to talk about initially your early-stage assumptions set. So in your deck, 72% of the defaults in the quarter were customers you seem to know already. You've got a big book of new business relative to the legacy book. Talking about inflows going down, you’re at 22% assumption set on the new book -- on the new defaults rather, it appears it moved down into the teens. When do we think we can see that move with you guys on sort of ongoing basis as we move into '14 and beyond?

This is Derek. I think generally we've been seeing the same trend that competitors pointed out. We've seen cures increasing. We've seen our roll to claim rates decreasing over time. Really, at this point, I don't think we've seen sufficient trend development to actually warrant making a chain in terms of our overall roll rate. The other thing I would point out is that the vast majority of our new defaults continue to come from our legacy portfolio. It'll probably -- approximately 95%. Obviously, that's going to have a higher roll to claim rate. I think one of the things you'll see is as you see the transition of new defaults to the newer book of business, you'd naturally see that roll down over time, but I think, before we make a change, we'll want to see the trend in terms of cures and roll to claim rate develop a little bit further.

Okay. And then on the rate side, let's see -- Genworth just rolled out 95 to 97 products in the 620 to 680 FICO range, and looks like the pricing 148 bps, which is a little less than 3x sort of the 90 to 95 pricing. My question, I guess, is when you look historically, pre-crisis, where is pricing and the sort of the higher quality 85 to 95 relative to where it's been historically, is it fair to think that even if pricing comes in on the mid [indiscernible] range stuff as credit loosens and mortgage more globally that a move to riskier, but being paid for that risk could offset top line from blended revenue?

Yes. I mean, I -- Jack, I think that's fair. The historical rates included a lot of lender paid and we're doing much more strict by the card rate, which means that our average premium rates are higher overall than they've been in quite some time compared to what they were. Certainly, as we've mentioned before, as we do more 95 LTV and we return to more historical norms in terms of 50-50, 95s versus 90s, the premium rates will go up because of that. So you will see some offsetting. And I think at this point, even with the decrease in 5 basis points, you're going to see premium rates overall that are as high they've been in history.

And I would just add that we also have the implementation of the QM coming up and so that potentially could even make the credit quality slightly even -- slightly more restrictive. I don't think it's going to be a lot. But I think it will maybe ebb to the credit's sort of moving away from what we're seeing today.

Our next question is from Sean Dargan with Macquarie.

Bob, I just wanted to make sure I got something correctly. You said that you expect claims to come down in 2014 versus '13 but still remain high on a historical basis. Did you say that you expect NIW to be down in 2014 over '13?

We didn't -- no, we didn't say that. The reference of the claims was that the $1.5 billion this year and then same net debt. We expect 2014 will be much less than that. But if you'll look historically, it's still going to be high by historic standards. So there wasn't any comment about the new insurance rate.

Okay. And you referenced Radian Asset in the press release. I was just wondering if you had any conversations with the FHFA and gotten their thoughts about what they think about that capital support.

At this point, the FHFA basically have kept its use to itself, so we expect to get greater clarity on those views when they come out with them publicly or give us an advance sounding period, but at this point, we're not aware of what they're thinking exactly.

And I would just add that we've -- as we've said, we've done wonderful job managing the risk down in Radian Asset's exposure. It's much less than it was -- the capital is of a much higher-quality by anyone's measure in terms of its availability and its ultimate access.

And just one more, regarding Puerto Rico. At what point in FG do you establish a reserve? So if you deem it more likely than not that there will be losses or do you have to wait until restructuring or default or what's kind of the test for that?

Yes, I mean, it's going to be driven largely by internal rating process. So with respect to Puerto Rico in particular, what we're going to be looking for to see if it returns to economic growth. It's been -- essentially in recession since 2007. So we're going to want to see some underlying growth We're also going to want to see a decrease in the structural budget deficit in Puerto Rico. As they've referenced, they've been making a number -- taking a number of steps to help close that gap. We just want to see how effective that is. And then the other thing we're going to watch closely is their ability to continue to fund themselves at an affordable rate. Now if those trend in a negative direction, what that would ultimately lead to is potentially a downgrade below investment grade and it's really -- when it moves into the below investment grade category, then we would start setting up reserves.

Our next question comes from Craig Perry with Paning Capital.

My questions have been answered.

Then we'll move on to Con Ryan with Saba Capital.

I just want to quickly touch on what you think it a reasonable range should be for NIW next year? I assume you're just using MBA origination assumptions. And the second question is, have you given any consideration to reporting operating EPS on a go-forward basis?

I will have Teresa add more color, but basically, you know it's difficult and all the industry forecasts have been changing pretty rapidly in terms of next year projections. So it's a moving target in terms of NIW. All I'd like to point to is seasonally, we do expect to see the purchase activity as it follows historical seasonality patterns to pick up in the second quarter as it normally does. And it stays elevated in the second and third quarters. Typically, it comes down in the fourth quarter and is low in the first quarter. Second, we see independence of those seasonality factors but hard to predict the timing, continued for the gains relative to the FHA -- penetration improved relative to the FHA. And then most forecast and most people in the industry we talked to have said that we're looking at a couple of years of refis going away, driven lower volume, but after that, they expect the industry to return to higher volumes as stability in the industry continues to take hold. Teresa?

Yes. I would just add that when we take a look at the overall volume, we usually look at MBA along with the Fannie and Freddie estimates to try to get a view from all 3. I think nothing really much more than that to add to what S.A. said, except we do report on a monthly basis our NIW and we'll continue to do so.

And in terms of operating EPS, we have certainly considered it. I think to this point, we have disclosed and been very transparent about the items that we think are either unusual or onetime or had a specific impact during the quarter. For instance, this quarter, the Freddie Mac agreement required us to book initially a $22 million incurred loss, some of the stock comp, and that's what we've done to date but we have certainly considered operating EPS.

And I guess just curious, I mean, why wouldn't you?

Well, I think that the obvious answer is, this Freddie Mac $22 million initially booked that incurred loss. So that's -- that couldn't be excluded from operating EPS, but it's an item that everyone needs to know why it happened and when it happened. So definitions are hard, and I think that's the reason so far. Instead, we've chosen to disclose the items that we think you need to know about specifically.

Yes, I know. But I guess what I'm saying is you can still be that, right? Like I guess what I'm saying is that to the extent that you're trying to focus on what is a clean, operating number and then you can make any comments you want about any onetime items. But just -- I guess I'm just a little confused as to why you wouldn't also include that number.

Okay. So noted, thank you.

That's a good point. We'll keep that in mind.

Our next question is from Bose George with KBW. Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: Actually, on the price cut that you mentioned, was that 5 basis points across the board?

It was 5 basis points on the borrower-paid monthly premium. Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And I think just conceptually when we think about the price cuts, I mean, how do you think lenders view it? Is that it's like a price among all the other factors they look at? Just curious how they respond to price cuts relatively small price cuts like that.

Yes. I think it really does vary depending on the lender and size of lender. I think what we find is that the smaller institutions, particularly, or some of the independent mortgage banks and community banks and so forth view that as much more important. I think some of the larger institutions may not feel it as critical. But there's sort of a variety of views out there. Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. Then just can you remind us just the ROEs on the new monthly premium that you're writing, assuming your 18:1 risk to capital?

Yes, mid to upper teen.

We'll go next to Howard Amster with Amster Trading.

Can you give me a sense of how much recapture of the business that you've maybe carried out is potentially brought back in '14 and '15?

Yes, Howard, the -- so we had 2 deals and I think we disclosed the specific amounts in the first -- what we call the first deal. 2/3 of that is eligible to be recaptured at the end of 2014. And the second deal, which is the one that's ongoing, 1/2 of that will be eligible to be recaptured at the end of 2015. It's our option to do that.

Right. I mean, can you just give me a sense of how much risk in force that would mean that you could potentially bring back on both the '14 and '15 numbers?

Yes. The total combined is $2.6 billion. And I don't know exactly what the breakdown is, but the total combined is $2.6 billion, so half to 2/3 of that.

Our next question is from Geoffrey Dunn with Dowling & Partners. Geoffrey M. Dunn - Dowling & Partners Securities, LLC: Bob, I wanted to follow on your comments about -- or it might have been Teresa's comments about pricing, even though you cut rates, premium could end up being at the top levels or even above where we see historically. So it's the monthly effort, it's running maybe on average around 58 bps across the board. 5 basis point cut brings us down to 53. Do you think that mix shift is going to bring you back up to that 58 monthly average and sustain it?

Yes, over time, certainly, it can get close, Geoff. It's going to depend on the mix, so it depends how much the 95 -- because those have a significantly higher premium. But yes, directionally, yes, and perhaps all the way to the levels. Geoffrey M. Dunn - Dowling & Partners Securities, LLC: Okay. And given the way that the FHFA is cutting the GSE, and in particular, LLPAs -- and it doesn't seem like the approach is going to change anytime soon. I mean, is that a prospect that can even happen in the next 2 to 3 years?

You mean in terms of whether or not they would reduce the LLPAs, Geoff? Geoffrey M. Dunn - Dowling & Partners Securities, LLC: Yes. I mean, it seems like that's one of the prohibitive items that's really preventing more sub 680 lending. So I'm trying to get an idea. To me, it seems like we're probably looking at rate pressure here unless that space opens up and you can expand your product base. It just seems like maybe that the GSE stance might prohibit that.

Well, I think that's -- you're absolutely right. It's very hard to sort of know where that's going to go. We certainly raised that issue with the FHFA, as well as others in Washington. At the same time, you'd continue to see acting Director DeMarco focused on price as a way to try to get sort of private capital back into the market. So at this juncture, I couldn't say that I would expect that to happen. But there could be changes there and other changes that could precipitate it in the future. Geoffrey M. Dunn - Dowling & Partners Securities, LLC: Okay. And then when you -- obviously, we don't have any details when the GSE capital changes. But have you heard of any discussions about them considering basically sources and uses or kind of claims-paying resources in their capital assessment? To which end, obviously, your revenue would matter and maybe that could help keep pricing rational going forward.

No. We've not heard that, Jeff. We've heard more sort of more traditional risk to capital with some variations off of that. I don't want to tell you that that's not going to happen because we really don't know exactly what it's going to look like, but we've not heard that specifically.

We have a follow-up from Jack Micenko with SIG.

Bob, real quick. Can you just drill down a little bit more on the stock expense timing? I think you said mid '14 and mid '15. Can you talk through that, maybe a little more clarity on the quarterly impact?

Yes. So I think that the rule of thumb that we've had over the -- for this year is that it's been about $7 million specific impact for every dollar increase in stock price. And that held true, the 17 to the $2.31 this quarter. I think the point that I was making is that, these things were -- they were finite and half of the awards will be paid out June by -- by June of 2014. So essentially, half of the volatility then goes away. And then after June of 2015, there'll be very little, if any, remaining volatility associated with stock price, because the more traditional equity awards are valued at grant date and amortized. These are unusual for us in that they're cash settled, so the accounting is different.

We have a question from Josh Beiderman [ph] with Payroll [ph].

Yes, I think you mentioned this earlier. Can you tell us what the penetration is for purchase and refi originations, respectively?

I mean, refis have been 4% to 5% and purchases have been in the...

18% to 19%

18% to 19%. That's what we said 4 -- about 4x.

Okay. So just kind of doing the math on what the MBA is forecasting. That actually shows that your market share -- or your share origination, NIW, should be relatively flat next year excluding any gain that the private MI industry gets from the FHA increasing pricing. Does that foot with what you guys are kind of seeing?

It really depends on the variety of factors. I think you can get there via those calculations. It's going to really depend on -- the penetration's is going to depend on how much refi falls and continues to fall. We're certainly looking at the fourth quarter that is going to be significantly lower than the third quarter.

And it's hard to predict next year for the reasons we went into earlier. All I can say is we have positioned this company to write as much as NIW -- profitable NIW as we can. And regardless, we are better off for having written that huge volume that we've written to date.

And our final question will come from Jackie Earle with Compass. Jackie Earle - Compass Point Research & Trading, LLC, Research Division: Sorry if it was already answered. But I jumped on a little late. Could you provide any color on the reasons for the price cut and how new entrants have had an impact? That would be great.

Teresa will answer.

Yes. I mean, I think that we saw a couple of competitors in the market start to make this price cuts. So we just match that. We haven't seen any impact at this point from new entrants in that regard.

And the last price cut to my knowledge was about 3 years ago. And it was the same situation there with roughly the same competitors.

The other point that I made earlier that you may not have heard is that one sort of -- one of the benefits here is that the price cut actually makes us a bit more competitive with FHA as we continue to focus on trying to pick up business from the FHA since it's still a significant portion of what they are doing is within our credit box.

Thank you. And Mr. Ibrahim, please go ahead with any closing remarks.

Again, I'd like to thank all of you for participating on our call, and look forward to seeing you all on the call next quarter. Thank you.