Radian Group Inc.

Welcome to the Radiant First Quarter 2020 Earnings Call. My name is Jenny, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star then 1 on your touch-tone phone. Please note that this conference is being recorded. I will now turn the call over to Senior Vice President of Investor Relations, John Damian. You may begin.

Thank you. and welcome to Radian's first quarter 2020 conference call. Our press release which contains Radian's financial results for the quarter was issued last evening and is posted to the investors section of our website at www.radian.biz. This press release includes certain non-GAAP measures which we will be discussed during today's call including adjusted pre-tax operating income, adjusted diluted net operating income per share, adjusted net operating return on equity, and real estate adjusted EBITDA. A complete description of these measures and the reconciliation of GAAP may be found in press release exhibits F and G and on the investor section of our website. In addition, we have also presented a related non-GAAP measure This morning, you will hear from Rick Thornberry, Radian's Chief Executive Officer, and Frank Hall, Chief Financial Officer. Also on hand for the Q&A portion of the call is Derek Brummer, President of Radian Mortgage. Due to the current environment, all of our speakers this morning are remote. I would ask that you please excuse any sound quality or technical issues that may arise during the call. 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 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 2019 Form 10-K as updated in our quarterly report on Form 10-Q for the first quarter of 2020 and subsequent reports filed with the SEC. These are also available on our website. Now, I would like to turn the call over to Rick.

Thank you, John, and good morning. Thank you all for joining us today and for your interest in Radian. I am pleased to share with you the results of an excellent quarter for our company. These results are testament to the strength of our business model and the power of one Radian unified team. While the focus of today's call is on the first quarter of 2020, we recognize the primary interest is on how the COVID-19 pandemic will impact our business going forward, and I plan to share our latest thoughts and insights. Our goal is to provide you with the best information we have available. Before I begin, I want to take a minute to thank our team for the incredible resilience and commitment they have demonstrated throughout this time. Our business continuity plans were in place, our technology infrastructure was ready, and our employees migrated to a work-from-home model in mid-March seamlessly without missing a beat. During this unexpected and unprecedented environment, our team has continued to operate effectively at a very high level with minimal disruption to our businesses or the services we provide to our customers. I'm very proud of how our entire team at Radian has responded to the challenge. Let's start with our first quarter results. I'm pleased to report another excellent quarter for our company with a focus on several key highlights. We reported net income of $140.5 million or 70 cents per share. Adjusted pre-tax operating income was $204.6 million and adjusted diluted net operating income per share was 80 cents. Return on equity was 14.2% and adjusted net operating return on equity was 16.3%. For our mortgage segment, we wrote $16.7 billion of NIW in the first quarter and which helped grow our primary insurance workforce to $241.6 billion. For our real estate segment, we grew revenues to $28.6 million, a 24% increase compared to the first quarter of 2019. Following the sale of Clayton in the first quarter, we've narrowed our focus to growing our title, valuation, asset management, and real estate services businesses. Frank will provide additional details on the quarter and our financial position. I want to turn now to the mortgage and real estate market environment. There's no doubt that we are going through an unprecedented time in our country and across the globe. It is too early to predict the full impact that the COVID-19 pandemic will have on our customers and our company. But it remains clear that the economic fallout will have significant impact on the housing finance and real estate markets. Given the current environment, we expect to see a slowdown in purchase loan volume across the mortgage market. However, given the overall low level of rates, we are seeing a significant increase in mortgage finance clients, which will result in lower persistency across our insurance portfolio. The impact of the pandemic, including federal, state, and local requirements that have been put in place, has had a major effect on many industries and businesses and their employees, resulting in a dramatic increase in unemployment rates. With the combination of increased unemployment and the mortgage relief opportunity provided by the CARES Act mortgage forbearance programs, we expect industry-wide mortgage defaults to increase significantly during the second quarter and in future periods. These forbearance programs are designed to support borrowers during this temporary hardship, help them remain in their homes, which is clearly a positive for our company and our industry. While entering these forbearance programs will not impact a borrower's credit, Any loan that has missed two payments technically constitutes a default in our portfolio regardless of whether those payments are missed because of forbearance. Therefore, we'll see an increased number of reported mortgage defaults in our insured portfolio which will drive an increase in PMIR's capital to be held against those loans. I will address PMIR's capital in more detail shortly. Given that we are early in the cycle, it's important to remember that the absolute level Timing and duration of those defaults are difficult to predict. I believe it is very important to highlight that this economic crisis was led by a global health crisis. The important point is that unlike the last financial crisis, which was led by housing, we entered this economic downturn with a strong and healthy housing market in terms of demand, supply, home values, and mortgage underwriting and servicing standards. In addition, we believe that many borrowers are in a more sustainable homeownership position during this cycle where they have built up significant equity in their home. We expect that this will better insulate the mortgage insurance industry from claims and ultimate losses. In response to the COVID-19 environment, we've taken several actions related to our business operations. Our highest priority has been on protecting our people and managing the continuity of our business operations. As I mentioned, we activated our business continuity program in mid-March to enable our employees to safely work virtually from home, which has gone smoothly. And it's important to note that we made this transition very quickly in a time when our businesses are extremely busy, a remarkable team effort. From a customer and business partner perspective, we've been focused on staying connected through virtual tools, phone calls and web meetings, rather than in person, which has proven to be highly effective and very successful. From an MI pricing and risk management perspective, we've increased our risk-based pricing and have made adjustments to our underwriting guidelines to account for the increased risk and uncertainty in the market today. Based on the dynamic nature of our radar rates pricing model, we were able to move quickly to align our pricing to the new environment and support our customers with competitive rates. Despite these sudden and unexpected changes in our business environment, We have evaluated and aligned our business with the temporary underwriting and servicing guidelines announced by the GSEs, which we believe are appropriate and constructive. We remain highly focused on maintaining our strong relationship with the servicers of our insured loans. We are closely monitoring how they navigate through the dramatic increase in defaults and prepare to resolve these defaults through various investor and borrow workout models. In addition to the regular communication and dialogue that we maintain with the GSEs and servicers, We are also working on enhanced reporting and benchmarking related to the most recent forbearance programs. Given the current environment, there's clearly uncertainty related to the forecast for mortgage industry activity and volume. But based on what we know today, including a strong NIW commitment pipeline, we expect to write new MI business in 2020 of more than $60 billion. In our real estate businesses, we are continually refining our service delivery models to adjust to the social distancing requirements, including how property valuations are completed and how real estate transactions are closed. Our ability to leverage our data, analytics, and technology platforms, combined with our team's ability to quickly respond innovatively, have been well received by our customers. Overall, I'm proud to say our businesses are operating well. Well, with strong momentum during this unprecedented time. Given today's macro environment and the expected increase in defaulted loans, our capital position is critical. At Radian, we have remained focused on optimizing our capital position, enhancing our return on capital, and increasing our financial flexibility in order to address any volatility in market and economic cycles. As the economic impact of COVID-19 became more uncertain, We suspended our share repurchase program as of March 19th. At March 31st, Radian Group maintained a strong capital position with $648 million of available liquidity. We also have a $265.5 million credit facility, which we extended this month through January 2022. We are focused on a couple of key capital management factors, a near-term increase in our PMIR's minimum required assets from growing COVID-19 forbearance defaults and estimating the longer-term potential claims and losses that may ultimately result from these defaults. The PMIR's capital requirements implemented after the financial crisis provide a capital structure built to withstand an extreme stress scenario. With regards to our current PMIRES position, rating guarantee available assets under PMIRES were approximately $4.1 billion at March 31st, resulting in a cushion of approximately $1.1 billion, or 38% above our minimum required assets. I want to highlight that our minimum required assets were reduced by $1.6 billion at March 31st, as a result of the 68% of Radian Guarantee's primary mortgage insurance risk and force that is subject to some form of risk distribution through the reinsurance and capital markets. In evaluating our PMIRES minimum required assets, it's important to note that COVID-19 is treated under PMIRES as a FEMA-declared major disaster event, and therefore the PMIRES capital charge for loans defaulting during this event including those in a forbearance plan is reduced by 70% in recognition that these defaults are expected to have a higher likelihood of curing following the event. To date, all states in the District of Columbia have been designated FEMA-declared major disaster areas, so this capital reduction is now being applied nationwide. You may read more about this criteria in our assumptions in our 10-Q, which was filed last evening and is available on our website. Based on the most recent MBA survey, approximately 6% of GSE mortgages are in forbearance. We do expect a larger percentage in forbearance for loans that we insure, where the LTV is 80% and above. Although the ultimate level of PMIR's capital requirements related to the COVID-19 forbearance defaults is difficult to predict, based on our current projections for our financial position as of June 30, 2020, We have the consolidated resources to support a default rate as of June 30, 2020 of up to approximately 25% of our estimated mortgage insurance portfolio. This is based on our PMIR's cushion and our resources available at our holding company as shown on webcast slide 19. Turning to the estimation of potential claims and losses, it's important to remember that that private mortgage insurers do not pay a claim until title to the property is transferred, primarily through foreclosure. Whether a default ultimately will result in a paid claim will depend upon a variety of factors, including the depth and breadth of the macroeconomic decline resulting from the COVID-19 pandemic and the potential positive impact of the government and investor programs put in place to support borrowers. We believe that government programs implemented through the CARES Act, including financial assistance through the taxpayer stimulus and increased unemployment benefits, mortgage forbearance programs and loss mitigation workout options, and the suspension of foreclosures and evictions, serve to align our industry to a common goal of supporting borrowers through this temporary hardship and helping them remain in their homes. Given that we expect a timeline for developing losses and paying claims will span multiple years, Thank you for joining us. We continue to write new business today, supporting our customers and their borrowers, and we expect to continue to write through the cycle, leveraging our strong management discipline to build economic value and achieve our targeted risk-adjusted returns. The steps we have taken over the past few years to prepare for an economic downturn, such as improving our debt maturity profile, leveraging economic value to construct our portfolio, proactively managing our customer relationships, Implementing greater risk-based granularity into our pricing and increasing our use of risk distribution strategies to lower the risk profile and financial volatility of our mortgage insurance portfolio, combined with building our PMIRS cushion and rating group liquidity, have strengthened our capital and financial position and positioned us to navigate this unprecedented environment. Now I would like to turn the call over to Frank for details of our financial position.

Thank you, Rick, and good morning, everyone. As Rick mentioned, our first quarter 2020 results were excellent, and I am pleased to share more details on those results shortly. I will also touch on some of the potential risks to our future operating performance expected as a result of the COVID-19 pandemic at the end of my remarks, but it is important to note that our results for the first quarter were relatively unaffected by the impact of COVID-19. As a reminder, given that the GAAP accounting standard for mortgage insurance establishes reserves only after a borrower has missed two loan payments, the financial impact from expected delinquencies associated with COVID-19 forbearance programs are likely to occur beginning in the second quarter. So turning now to our first quarter results, I would like to highlight changes to our reporting segments as reflected in our release. These segment reporting changes align with the recent changes in personnel reporting lines, management oversight, and branding following the sale of Clayton in January of this year. Reflecting these changes, we now have two reportable segments, mortgage and real estate. Among other changes, the historical results for Clayton have been removed and are now included in a separate all other category, to aid in the analysis of trends for our two reportable segments. The segment information included in press release exhibit E has been recast to this new structure for all periods presented. Additional background on these changes can also be found in our press release. To recap our financial results issued yesterday evening, we reported GAAP net income of $140.5 million Thank you for joining us. and an increase of 10% over the same quarter last year. I'll now turn to the key drivers of our revenue. As Rick mentioned earlier, our new insurance written was $16.7 billion during the quarter compared to $20 billion last quarter and $10.9 billion in the first quarter of 2019. Direct monthly and other recurring premium policies were 81% of our new insurance written this quarter A slight decrease from 82% for the fourth quarter of 2019 and 83% for the first quarter a year ago. In total, borrower paid policies were 97% of our new business for the first quarter. Primary insurance and force increased to $241.6 billion at the end of the quarter, with year-over-year insurance and force growth of 8%. It is important to note that monthly premium insurance in force increased 11% year over year and has grown by approximately $33 billion over the past two years. Given the current mortgage rate environment, changing industry forecasts, and the overall COVID-19 operating environment, it is expected that persistency will be more volatile in the near term and therefore difficult to predict, though will likely decrease. Our 12-month persistency rate of 75.4% decreased from 78.2% in the prior quarter and 83.4% in the first quarter of 2019 Our quarterly annualized persistency rate was 76.5% this quarter an increase from 75% in the fourth quarter of 2019 and a decrease from 85.4% in the first quarter of 2019 The year-over-year decline in quarterly annualized persistency is primarily driven by increased refinance activity observed in the quarter. Moving now to our portfolio premium yield. Our direct in-force premium yield was 46.1 basis points this quarter compared to 47.1 basis points last quarter and 48.6 basis points in the first quarter of 2019. Thank you for joining us. which accelerate this premium yield decline. The timing and magnitude of future portfolio yield changes will continue to depend on several factors including the volume, mix, and pricing of new business relative to volume and mix of cancellations and prepayments in our portfolio. With regard to our pricing on new business, Thank you for joining us. continued to execute its risk distribution strategy in the first quarter of 2020 by entering into the 2020 Single Premium QSR program, which covers the 2020 and 2021 vintages of single premium production. Net mortgage insurance premiums earned were $277.4 million in the first quarter of 2020, Thank you for joining us. Excluding the impact of the fourth quarter 2019 adjustment, our linked quarter decrease was approximately 2%. Our net premiums earned increased 5% compared to the first quarter of 2019, primarily attributable to the growth in our insurance and force, as well as the increase in single premium policy cancellations. Total real estate segment revenue was $28.6 million for the first quarter of 2020, representing a 6% increase compared to $27 million for the fourth quarter of 2019, and a 24% increase compared to $23 million from the first quarter of 2019. Our reported real estate adjusted EBITDA for the first quarter of 2020 was impacted by several immaterial transition-related expenses and recorded a loss of $365,000. Our investment income this quarter of $41 million was down 1% from the prior quarter and 7% from the same quarter prior year due to lower investment yields, which were partially offset by higher balances in our investment portfolio. At quarter end, the investment portfolio duration was approximately four years, consistent with the prior quarter. Moving now to our loss provision and credit quality. As noted on slide 14, the provision for losses for the first quarter of 2020 includes positive development on prior period defaults of $5.9 million. A decrease from favorable reserve development on prior period defaults of $18.2 million recognized in the first quarter of 2019. The positive development in the first quarter of 2020 was driven by cures and other activity on foreclosures and other aged defaults. As noted on slide 15, observe trends in claim submissions and cures during the first quarter of 2020 and Thank you for joining us. It is expected, however, that the impact of forbearance programs related to COVID-19 will materially change the reported delinquencies in the second quarter of 2020, and our default to claim rate assumptions on new defaults will be reevaluated in the context of available information at that time. Now turning to expenses. Other operating expenses were $69.1 million in the first quarter of 2020, Thank you for joining us. were primarily driven by higher seating commissions due to single premium policy cancellations, which reduce our expenses, as well as a decrease in legal and other professional services expense. Now moving to capital. For Radian Guarantee, in January, we closed on our third insurance-linked note transaction of approximately $488 million. This brings the total insurance-linked note issuance by Eagle Re., to approximately $1.5 billion with remaining coverage outstanding of approximately $1.2 billion covering originations from January 2017 to September 2019 for our monthly premium business. In total, we have reduced Radian Guarantee's P. Myers capital requirements by $1.6 billion as of the first quarter 2020 by distributing risk through both the capital markets and third-party reinsurance execution, as noted on press release Exhibit L. As a reminder, in the first quarter, we terminated our intercompany reinsurance agreement with Radian Reinsurance, resulting in the transfer of $6 billion of risk from Radian Reinsurance to Radian Guarantee, along with a $465 million return of capital from Radian Reinsurance to Radian Group, and the transfer of $200 million of cash and marketable securities from Radian Group to Radian Guarantee in exchange for a surplus note. Following these steps, Radian Guarantee now holds all of our traditional mortgage insurance risk and Radian Reinsurance exclusively holds our exposure to the GSE's credit risk transfer programs. For Radian Group, as of March 31, 2020... Thank you for joining us today. During the first quarter of 2020, Radian Group repurchased approximately 11 million shares of our common stock for approximately $226.3 million, including commissions, under the August 2019 share repurchase program. And during the quarter, we announced the suspension of our share repurchase program by canceling the 10B51 plan effective March 19, 2020. The current share repurchase authorization expires on August 31, 2021 and has purchase authority remaining of up to $199 million. And now to the expected impact of COVID-19. The impact of COVID-19 on our operating results is expected to have both short-term and long-term impacts. We expect to experience a short-term impact over the next couple of quarters The expected longer-term impact for P. Myers is will be driven by the overall number of delinquencies and how these delinquencies age or cure. The expected longer term impact for our GAAP financials will depend on what our actual claims experience on COVID-19 based defaults will be relative to our second quarter and subsequent period reserve estimates. And as Rick mentioned earlier, actual claims could take years. While PMIRES is frequently referred to as a capital framework, it is actually an asset-based framework that is calibrated to a significant stress scenario and has little or no impact on our GAAP financial statements, but rather focuses on the maintenance of sufficient high-quality assets to pay claims. Minimum required asset factors for both performing loans and delinquent loans are defined within PMIRES and are expressed as percentages of the risk held. As delinquent loans age through older delinquency or missed payment buckets, the minimum required asset factor increases. The highest percentage change in asset factor occurs in the initial delinquency bucket of two to three missed payments where the minimum required asset factor moves from an approximate six to seven percent level for performing loans up to 55 percent In the FEMA-declared major disaster areas, this 55% asset factor is reduced by 70% to 16.5%, still a significant increase from the base 6-7%. So, as Rick mentioned, we expect to be able to absorb up to 25% of our portfolio in delinquent loans as of June 30, 2020. depending on the level of holding company resources we use. This is simply the application of the relevant PMIRES minimum required asset factor for our projected portfolio with escalating delinquencies at that time relative to our then projected excess of available assets over minimum required assets. Generally speaking, minimum required assets can be reduced by reinsurance and other risk transfer and available assets can be increased by contributions from holding company to the operating company as well as from positive operating cash flows over time. Our gap financial statements are impacted by our own estimates of ultimate losses, not the formulaic and static factors of PMIRES. It is critical to understand this difference primarily because movements in PMIRES minimum required assets May imply a different view of ultimate expected losses than our own It is also important to remember that our initial loss estimates will be based upon the best information we have at the time to estimate a default to claim rate However, our initial estimates may be materially different from what ultimately rolls to claim These estimates are updated in every reporting period and could cause material fluctuations in our provision expense in each period Thank you for joining us. Maintaining over $900 million in total liquidity at our holding company and no debt maturities until October 2024. The risk-based capital framework of P. Myers has been fully implemented by all mortgage insurers and has increased to the available resources of the industry to withstand stress events. At Radian Guarantee, we have $1.1 billion in excess P. Myers available assets. We also have significant benefit from risk distribution transactions on more recent vintages, and our older vintages have benefited from significant home price appreciation, providing another potential barrier to loss. Loan originations since the last financial crisis have been underwritten in a more disciplined environment, driven in large part by the qualified mortgage loan requirements under the Dodd-Frank Act, Thank you for joining us. Thank you for joining us. There are policy changes occurring now and potentially in the future that will likely support keeping people in their homes and preventing foreclosure. And while these strategic and systemic defenses will not provide complete immunity to the expected upcoming negative effects to our results, we believe that we are much better positioned to absorb the impact of economic stress than in the global financial crisis. I will now turn the call back over to Rick.

Before we take your questions, I'd like to remind you of a few items. The first quarter of 2020 was a very strong quarter for the company. We believe that we are well positioned to weather this negative economic environment resulting from the COVID-19 pandemic with strong PMARS Capital and Radian Group available liquidity, plus the unrecognized future value in our insurance portfolio. While the market has changed dramatically and our team is working currently remotely, Thank you for joining us today.

Thank you. If you have a question, please press star then 1 on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then 1 on your touchtone phone. And our first question comes from Mihir Bhatia from BOA.

Hi, good morning and thanks for taking my questions. Hope everyone is staying safe and healthy. Just wanted to start with, you know, on the forbearance loans and, you know, default to claim rate assumptions. I understand it's probably too early to give specific numbers, but could you maybe just contrast the range that you see between maybe what you saw in the crisis on your, you know, prying loans in the crisis in terms of default to claim versus what you see Coming Out of a Natural Disaster, you know, just to help us frame what a reasonable range of outcomes can be on that defaulted claim.

This is Derek. In terms of the crisis, it's a little hard to use that as a proxy. One, given the fact that that was a housing-led downturn, also fundamental home prices were significantly overvalued at that point. Also, the underwriting quality and credit quality was much worse. So on those defaults, they roll at a much higher level. I think that a better proxy is if you look at hurricane propensities to roll the claim after default, those are significantly lower. And if you look at kind of our experience with Harvey and Irma, you would see kind of a roll to claim rate more in that 2% range. So the question, I don't think you would use the financial crisis as probably a good proxy for a roll to claim. What you would look at is just a bit of a combination of, I would say, a natural disaster-induced. So you would see that as a bit of a proxy for a role to claim. But as part of this, you also have real economic stress. But it's important to keep in mind that that economic stress is on much better quality loans with better underwriting and also much more temporary in nature in terms of dislocation from an economic perspective. which would also push down the probability that those loans would ultimately roll to claim. So that's why I think you look at more of a run of the mill recession and also more of kind of our disaster experience. And it's kind of a combination of those things that you use to get your ultimate, I would say, roll to claim rate.

Understood. No, that's helpful. Thank you. And then just another question. I was curious, are there any statistics that you can share around just borrower-level industry exposure that you may have? You know, just, you know, clearly certain segments of the industry or of the economy are more impacted. So I'm just trying to, you know, as we think about, you know, recovery rates and, you know, how quickly the defaulted claim can come down just from your borrower base, if there's any.

Yeah, it's a little hard to, I would say, give you a statistic. I think what we can see is and I think we see some of this in the data is those who are applying for unemployment in the initial wave are probably more skewed towards income segments that would be less represented in terms of the mortgage borrower universe and less representative in our portfolio. So that makes it somewhat difficult to use traditional measures like unemployment and translate that into a default rate because it's skewed a bit away from our portfolio. Same thing from an industry perspective. It's more concentrated in kind of the sectors such as restaurants, leisure, and so things like that also are going to be less represented. And that's important because the other thing we do is we take that into account in terms of our pricing. So as we think about our pricing adjustments, what we're doing from a geographic perspective is increasing pricing more on a relative basis in those deals where they have more concentration in those sectors. So I would say compared to probably history, I would say that the unemployment forbearance is probably kind of pushed away from, I would say, our segment more so than has historically been the case.

I might just add one comment to Derek's comments, which he alluded to, which is really just trying to understand the split. between renters and homeowners in that unemployment number. And, you know, given Derek's characteristic of kind of that group, we really are watching the rent roll rates as much as we are kind of forbearance because, you know, from all the statistics we can see is, you know, this is hitting renters, you know, potentially pretty hard as well. So, again, more information to come and, you know, we all need more data. But I think it's something that we're watching very carefully as well.

That is helpful, thank you. And then just last question before I jump back into you, but I had a question on the disaster relief, you know, on the 70% or the 30% multiplier, if you will, the disaster relief capital charge discount. There's a line in your 10Q about the GFCs potentially interpreting that less favorably. I was just curious, what do you mean by that? I guess my understanding, like, you know, when you look at the PMI as it's there, so what is up for interpretation on that? Thank you.

Yeah, I think that in terms of the risk factors, some of it has to do with just the application of the haircut going forward. So to get a little bit technical here, the way it works is you essentially identify the loans that are given that initial haircut and you look at the event and you go 30 days before and 90 days after and that's your population. The one question is how long that multiplier continues to apply. And if you look at the PMIRES, what you look at are FEMA-declared disaster areas that are eligible for individual assistance. Now, this is less significant a risk for us because at this point, about 90% of our risk is actually in FEMA-declared disaster areas eligible for individual assistance. And why that matters is to the extent it's in one of those areas and it's under a forbearance plan, then you get that haircut of 70% for as long as it continues in forbearance. So one question is what happens with that remaining 9% that's not in areas that are eligible for individual assistance. So I would say that is probably, I would say, the risk around that right now. And you have some technical aspects such as, you know, in this case, as opposed to a hurricane that has a point in time where you can give a date for the event, this is more of a rolling natural disaster. So where do you kind of peg the event? Again, More kind of technical nuances, I think, in terms of the particulars within PMIRES is what we're talking about at this point.

Okay. Just to clarify, so there's not – there isn't a risk that they would say, hey, no, no, this 70%, this isn't what we meant when we said natural disaster. Like, that would actually be – they'd have to make a change to PMIRES to say that. Like, so in this case, it is safe to assume that it does apply because it's PMIRES-designated and –

Right. Yeah, it's pretty clear in the language. These are declared disaster areas. It's very clear which ones are subject, you know, or eligible for individual assistance. So it would have to be a fundamental change with respect to how they're approaching the PMIRs for that change to be made.

Understood. Thank you. I'll come back in queue. Thank you.

And our next question comes from both George from KBW.

Hey, guys. Good morning. Just wanted to follow up again on capital. It looks like this year with the forbearance, the discount multiplier, you guys are very well positioned, obviously, for a very high forbearance rate. Moving forward into next year, once these forbearances are over, if there's an organic recession where delinquencies are very high, there could be a need for capital again. So I'm just curious, how are you thinking about that? Are there thoughts to look at ways to potentially sort of have capital available if it's necessary in the future? Sure.

Thanks, Bo. This is Frank.

Yeah, I think when it comes to the capital planning associated with the environment that we're in right now, we're going to continue to be flexible and we're going to continue to position our capital in a way where we can be nimble and address the situation as it evolves. And so that could be, you know, further utilization of reinsurance, of ILNs. You know, when you look at our available resources just as they sit today from a PMIRES standpoint, you know, we have technically excess available resources of $2 billion, which is roughly 68% cushioned for us right now. So, you know, as this continues to develop, we'll respond accordingly and make sure that we are positioned well. But, yeah, I think fortunately, as Derek just went through, the haircut certainly helps. And I think we'll just have to see, even from a governmental policy standpoint, how things continue to evolve further. I think there's just a general appreciation for the fact that they would like to have people stay in their homes. And so if it's a foreclosure holiday or something like that that continues, that of course helps us out from an ultimate claim perspective. And so we'll just see how all of these things align and operate on a go-forward basis. You know, the range of possibilities that we're looking at is vast, and we just want to make sure that we can look as far forward with the best information that we have available and make sure that we're well positioned, again, to maintain the strength and flexibility that we've demonstrated over time.

Okay, that makes sense. Thanks. And then, actually, going back to the comments you made about price increases, can you give us an idea of the magnitude of the increases and Also, just in terms of the ROE, essentially it's still targeting the same ROE, but the higher prices just incorporate the higher risk now in terms of returns.

Yes, this is Derek. Yeah, that's a good question. So, that is the right way to think about it. So, as we think about it from a pricing perspective, we're adjusting the pricing, factoring in kind of the new economic environment and the expectation that we're going to have an increase certainly in delinquencies and we're going through a stress period. Our attempt is to adjust pricing to kind of get back to that targeted return. So as a result, we adjusted prices significantly across the board. And then in certain segments, and you can think about this from a credit dimension perspective, you can think about it from a geographic dimension perspective, you know, we increased pricing relatively more or less based upon that view of our risk to kind of get back to that expected return we're looking to generate. and what we found in the industry is based on the data we have, we think that our competitors have also increased pricing. I think some of our competitors have perhaps done it more targeted, a more targeted basis. Like I said, we've targeted certain segments, but we've instituted pricing across, increases across the board, I would say. So we continue to monitor that because, again, trying to get a sense as to where the competitive dynamics are and, again, we're always looking for opportunities where we can find spots to maximize the economic value we're generating on that new business. That's why it's very useful to have our new pricing tool, Radar Rates, which is very dynamic, flexible. We can make those pricing changes on a targeted basis. It makes it much easier to manage the portfolio and make kind of quick changes when economic conditions change.

Okay. And this is just significant. Is that sort of over 20% or do you not want to be as precise about what that means?

Yeah, I think generally you've been seeing price changes, I would say, just industry-wide ranging, I would say, anywhere from 10% to 50% increases depending upon, again, very dependent upon kind of the credit sectors that people are trying to target. So I would say significant double-digit price increases we've been seeing. Okay, great. Thanks, Dave.

Our next question comes from Mackenzie Aaron from Zoman. Thanks. Good morning.

Good morning. Following up on the pricing changes, can you also give us some insight into the underwriting changes that you've made? And I know there have been some product restrictions in any way to quantify what percent of volume that was done in 2019 may no longer be eligible.

Yeah, I think from a credit overlay perspective, you know we stopped underwriting investor loans cash out leave size those were pretty small percentages I think in aggregate those have been running at definitely less than 1% of the overall portfolio I would say a lot of the underwriting changes again is trying to balance this new environment where there's certain difficulties posed such as you know verifying employment income assets so a lot of it's been kind of around that So documentation requirements around that, shortening the length of time in which documents can need to be updated and things like that. The other thing is just additional diligence around the underwriting side. Again, this new environment, there are certain things, underwriting activities you might traditionally do, for instance, on the appraisal side that make it more difficult. So a lot of the changes have to do with making sure we're appropriately dealing with from a risk perspective. And I would say we're working closely on this with the GSEs in terms of working with them. I think we've seen some changes in terms of their automated underwriting systems as well. I would say overall, though, in terms of the portion of business we were doing that's no longer eligible, I don't think it's significant. But I think in terms of just the underwriting processes and taking out some of the tail risks, That's where we've seen a movement. The other thing I would point out is just from an overall risk perspective and a risk layering perspective. And if you look at that, that's a continuation of a trend we've really seen over the last, I would say, year and a half. If you look at the percentage of our business coming in with below 685, greater than 95 LTV, greater than 45 DTI, that's significantly increased over the last year. And perhaps even more importantly, layered risk where we have a combination of those factors have dramatically decreased. So I would say a continuation also important is very good position to be in in terms of the more recent books of business that might have benefited from less significant home price appreciation has been really amongst the highest credit quality books of businesses that we've ever underwritten.

That's helpful. Thank you. And then switching gears, on the real estate services segment, can you talk about expectations around that business this year, given the lower transaction environment and how we should be thinking about the contribution?

Thanks, Mackenzie. Yeah, happy to comment on it. You know, I think we've hit the year running from a business point of view with the sale of Clayton and really kind of refocusing our business around a core set of real estate assets, as we think of it. focused on growing our title valuation asset management and just other real estate services, but really largely focused around real estate transactions. And I think, you know, we pointed Eric and Brian as the co-heads of that business or that segment and integrated across each of these four product groups are sales and operations and technology and marketing teams. So we're as focused on, I would call it, and some of those Groups, the monoline players that are either valuation focused or title focused. Our teams are focused on winning and developing kind of a disruptive position in their respective marketplaces. So we're not really, given some of the uncertainty in the marketplace, we're not at a point where we would provide guidance today. But I would say the momentum in those businesses is really very strong in light of You know, some of the refinance activity evaluation title. We're seeing those businesses grow, right? And we would, you know, hopefully as we get a little bit further in the year and we see this environment settle down, we can give a little clearer guidance. But the momentum is strong. The team's done a remarkable job. So I like to say we threw them all out of the office in mid-March and said, you know, Go do growing levels of volume across our title and valuation businesses and do it in a very new setting, and they've done remarkably well. But I'd say we're seeing a great deal of receptivity from our MI clients. We're increasing the penetration of our MI clients across multiple products and growing the number of new clients. So today we think narrowing the focus on the highest value elements, as I said, You know, the past quarter after we sold the Clayton business, really focusing on the high value opportunities where we think we can be a next generation player in these markets that, you know, are very, very closely connected to our MI partnerships. So it's, you know, right now I'm actually very pleased with the progress we're making and, you know, hope to have good news, continuing good news to report in the future quarters.

Thank you, Rick.

Thank you.

Our next question comes from Jack Misenko from SIG.

Hi, good morning, everyone. Hey, Frank, I wanted to go back to your initial comments around the 25% DQ rate and PMRS compliance. Are you, does that number one assume the initial asset factor on the three-month delinquency, or do you run that all the way out to the one year? And then second, where is that $2 billion available? You know what I'm talking about. You've got the 68% cushion when you layer in all the debt and everything else that's untapped. How does that factor into that calculation as well?

Sure, Jack. The 25% number really is derived from an estimate at June 30. So if you think about where we stand right now with... The delinquencies associated with forbearance programs, by June 30, they're only in that missed two to three payment bucket for the most part. That's probably the largest assumption in the calculation of that number. That's what we're contemplating there. The resources that we're that we're attributing to the absorption of that number would be the full resources, which are shown on slide 19, the estimated resources at June 30th as well. So it's important to remember that the June 30 number projected, which would include the P. Myers Cushion at the Opco expected holding company available resources and the credit facility.

Okay, thanks for that. And then, Rick, I think the $60 billion number, can you talk to us about what you're seeing in April on a volume basis, maybe either year over year or split between purchase and refi? Obviously, refi is going to be a much, much bigger number than most people thought three or four months ago to kind of give you that confidence into the $60 billion full-year number.

Yeah, Jack, thank you. You know, We feel very good about the greater than, I think we said more than $60 billion, which is, as we sit here today, seeing, as I mentioned in my script, a very strong new commitment pipeline. Obviously, refinances are playing a bigger role in the marketplace, as you can see just from purchases pulling back. as listings are pulled out. We may see that bounce back through the year, but right now we're assuming that there's going to be a growing percent of refinances and a reduced percentage of purchase loans in the overall market. So today we are seeing increased activity across refinances. We have a strong committed pipeline. Part of the question, as we think about it, is what does the second half of the year look like? How does it develop? What happens as the government starts to have to fund all the stimulus? What happens to interest rates? What happens to the purchase market? So I think we're taking a kind of a cautious view of the future, if you will, and thinking through how it will evolve. And I would say today, based upon what we see, we feel very comfortable about the More than $60 billion. And hopefully at the end of the second quarter, you know, Derek and I can give you, you know, a better view of how the year is shaping up. But we think it's a little too early to have a view of the second half of the year.

Okay, got it. Hey, Craig, just real quick, one more, if I could sneak one in on expenses and run rate. You had some volatility on the expense line. It came in better this quarter, and I think there was some incentive and some one-timers. But As we go into this and everybody sort of activates their transition plan, there's some tech spend that probably goes up, but then there's some offset. The sales force is now entertaining and that sort of thing. How do you think about expense run rate through the balance of the year on a quarterly basis?

Sure. So, Jack, last quarter we were sort of calibrating to a $70 million quarterly number. After the sale of Clayton, I would tell you it's probably too soon to tell what the what I'll call them the permanent impacts associated with the change in the landscape. So, you know, to the extent life does get back to normal, whatever that is, you know, I would say that number is probably a good number to go with. But it really is just too early to tell right now and make any type of permanent adjustments. Thanks, guys. Good luck.

Thank you.

Our next question comes from Mark DeVries from Berkeley.

Yeah, thanks. Just a follow-up question on the 25% default assumption. Frank, do you have a sense for how high the default rate can go without you having to distribute any of the excess resources at The holding company down to rating guarantee. Is it as simple as, since it sounds like that's about half of the available excess assets, that it would be somewhere like a 12% to 15% range?

Yeah, that actually is a good estimate for what that range is.

Okay. And should we assume then you're just going to be hoarding cash with the holding company until you get a sense that those kind of defaults have peaked out?

Mark, what I would describe, you know, our approach has historically been is making sure that we have positioned our cash throughout our legal entities in a way to preserve maximum flexibility. So we're certainly going to be mindful of the requirements for the operating company and we'll be responsive as we need to be there. But, you know, we're going to make sure, again, we do have maximum flexibility with Golden Company, but we are sensitive to that PMIRs cushion at the Alpco as well. So we'll see how that plays out over time as far as, you know, how that may get rebalanced in the context of new information and what the second quarter starts to shape up and look like. But that's generally how we have managed our resources just throughout the organization.

Mark, this is Rick. I might just add to Frank's comments. One, as we released our 10Q last night, we did provide great detail on the risk factors about kind of our views around the capital situation. So you can, when you have a chance, go back and take a peek at those. But I think the other part I would say is that, you know, we've intentionally – Thank you for joining us. and think through it at that level continuously.

Okay, got it. And my next question may be for Derek. Are you able to discuss for us when you're pricing this around to a mid-teens return, what you guys are assuming in terms of kind of rate and should we expect that that would be lower than you would expect to see on your existing book?

I'm sorry, cut out slightly there. Are we assuming what would be lower?

The ultimate default rate and claims rate on new insurance that you'll be writing today would be lower than what you expect to see on your existing book.

Yeah, so the way to look at it, when we're resetting price, so when we're writing the new business now, We're actually assuming in this scenario that you would have a bit higher default rate. So the way to think about it, when we're setting pricing, we're doing it on a simulation basis, right? So we're looking at multiple scenarios. But as the economy, and this is an unusual situation where we kind of have telegraphed in front of us a recession. So in that case, when you kind of think about the, let's say, expected or mean path in our simulation, that got relatively worse. So that's going to translate naturally. into assumptions that you're going to have higher claim rates. And so you're adjusting pricing to essentially account for that. In addition to having just higher claim rates, you're also assuming you're going to have just an increase in default rates, which also factors in an increase in the amount of capital we have to hold against it. So you basically use those as inputs, and then your output, you basically kind of solve for an appropriate price to get back to that return that you're looking for.

Okay, understood. Is there any color you can provide on kind of what you would assume today on kind of those default rates and claim rates?

Yeah, I'm probably not going to go into a lot of details in the particular assumptions. They're also very dynamic. I think the other thing to keep in mind, we're still early on in this, so we're still gathering a lot of information, particularly as we have the May payment dates coming up, so J.D. J.D. It's a bit unprecedented. It's not your run-of-the-mill recession. So trying to figure out, again, we talked about this earlier, the unemployment rate or modeling takes into account as big explanatory variables, obviously home price paths, unemployment, but even interpreting kind of those unemployment paths where, you know, it's much bigger percentage that are applying for unemployment on a temporary basis. So how quickly that snaps back. is going to be important variables, and I would say we're constantly tweaking and updating our assumptions around that as well, and then how that actually affects home prices as well. Again, from a fundamental perspective, we think home prices, again, coming into this fundamentally, the fairly valued, the supply-demand dynamics were very good. We didn't have a lot of speculative excess, so we think that to the extent that there's kind of pressure on home prices, we don't see a significant kind of drop in our base case scenarios But again, at the margins, we're constantly adjusting that.

Okay. I think, you know, Mark, I would add that Derek and team have done an amazing job with radar rates of being able to take that, those analytics real-time into our pricing very, very quickly, which, you know, if you go back a year or so, two years ago, this industry would have labored over making pricing changes. Now we can make them really very, very quickly and reflect the risk environment almost, you know, at the time it's occurring. So what Derek's referring to gets applied real-time in the marketplace.

Okay. Great. I appreciate all the color.

And our next question comes from Jeffrey Dunn from Dahlian Partners.

Thanks. Good morning. Good morning. Derek, I think you said earlier on maybe one way to think about this is kind of a combination of hurricane considerations and a run-of-the-mill recession. So something like Moody's S3, did I catch that correctly?

Yeah, I think that is the right way to think about it. And it's hard to, I think, bifurcate kind of those type of defaults, right? So you kind of have to think about it in total, but that's right. And the way we kind of see this playing out, at least the way I think of it, is in the short term, it's probably more of a disaster, especially some of those early forbearances and in a typical disaster what happens is you have businesses turn off and they turn back on this might be more elongated compared to kind of a hurricane disaster so we think that's probably that's a very big force within it but again just because the fact that not all businesses are going to turn on and not all jobs are going to turn back on as you might see in a natural disaster you're going to have kind of that I would say more of a typical recessionary impact as well. The one thing though I would also keep in mind is the unprecedented government support because in a typical run of the mill recession like an S3, you don't have things like expanded unemployment benefits in terms of those who are eligible, expanded unemployment benefits, checks being mailed out to people, PPP loans. So trying to factor that in, so even if you think about it as a run-of-the-mill recession, I think you also need to think about the government support, which is going to end up putting downward pressure, not to mention the fact that if you look at these loss mitigation workout options that the GSEs are putting in place, I think the most likely scenario for borrowers who find themselves in real difficulty being able to make up payments that they've missed because of forbearance The most likely scenarios that they can't make those, those are put on at the end of the mortgage. So, especially in a situation like this where it's recognized that it's really driven by kind of health issues and policy decisions, there's a real effort to keep people in their homes, which is important for us since we don't pay claims until, you know, it actually goes through the foreclosure process. So, That's why it's like a combination of things, a natural disaster, run-of-the-mill recession, but a run-of-the-mill recession that has very significant government intervention, probably on scales that you've never seen.

Okay. So what I wanted to get at is, in the majority of the scenarios that Radian is running, do ILNs attach? Because they're typically, I mean, just a couple of years ago, I think the normalized loss assumption in pricing was 2, 2.5% cumulative. I would just call it on average islands attaching at two and a half. So given your thought process on this and the various scenarios you're running, in the majority of the cases, are you even attaching on islands?

Expectation in most cases is we are not attaching on the islands. So, you know, and I think you have some common scenarios out there and just to help since people use it as a frame of reference, for instance, If you're running a Moody's S3, you're not going to see an attachment. A Moody's S4, we do see some of the ILNs attached and some not attached, right? And that's going to matter, obviously, the newer ILNs, because we are fortunate and issued one that covered our 2019, the first three quarters. In a scenario like that, an S3, you could see that attaching potentially a scenario like that. But generally, I would say no, those aren't attaching. Those are providing tail coverage. And in this scenario, we're seeing kind of it outside of kind of most reasonable scenarios.

So on a life of book basis, while near term can be painful, if you're not attaching to ILN, you're not exceeding maybe two and a half cumulative, it doesn't sound like your targeted returns are likely significant. All that disrupted. Is that the right conclusion?

Again, I would say that there's a lot of uncertainty around it in terms of that economic path. But I do think the way to think about it is kind of making a distinction, which, you know, Frank talked a bit about, which is kind of a short-term, I would say, P. Myers capital increase issue we have. Because as you have these delinquencies, you have to stack increased capital because P. Myers is quite post-cyclical in that sense. but if you think about it over the long term and the probability that those go delinquent in curing and again that natural disaster kind of scenario I talked about you do see kind of this I would say front loaded increase in delinquencies so you have an increase in P. Myers capital and then you have incurred losses but then that should be pretty front loaded and over the long term again I think that Depending on the scenarios, that's why I think we feel pretty comfortable from an ultimate claim perspective and how this plays out over the long term. But again, I would just caution there's obviously a lot of uncertainty around that because it's based upon the information we have at this point in time and it's going to be heavily dependent upon what happens not only from an economic perspective, but what's happening from a health perspective and how quickly states get back up online and how long they stay online.

Okay, thanks. And then just a quick follow-up. I think the sense was at the end of last year that the penetration rate on refis was higher than we had been seeing previously as the speed of somebody originating and then refi was getting shorter. Is your sense that the refi activity we're seeing in 2020 is still seeing those more elevated refi penetration levels?

Yeah I think that's safe to say because I think it's the same dynamic that we've talked about before right is because again rates and as they continue to go lower you're seeing some of those books of business that have recent books of business that have a significant you know refi incentives so for instance when we look at our books like the 2018 vintage If you look at that, depending upon your, you know, assumption, whether it's 75 or 100 basis points of kind of benefit you need, you know, the majority of that, you know, has that incentive. So, yeah, I think that phenomenon we talked about before continues and it'll continue, especially as you see these new historical low interest rates. Okay, thank you.

And our next question comes from Chris Gamitoni from Compass Points.

Thanks for taking my call. I'm not sure if this is for Derek or Frank. Typically in a normal downturn delinquencies occur slowly and increase over time and at least historically provisions have been very dependent on the age or the amount of payments that they've missed. This cycle it seems like we're going to get a whole lot of delinquencies very quickly. I guess my question is The way you're thinking about it is if we assumed 100% of delinquency of forbearance is coming the second quarter, are you trying to book the lifetime reserve there, or is there still some aging concept of delinquency in future periods?

Yeah, this is Frank. It's a great question, and that was part of what I was trying to address in the prepared remarks. You know, the first part of that question about the timing of delinquencies, We're saying that it's likely to occur over the next couple of quarters, and it may take some time for borrowers to miss that second payment. So not sure on the timing of that. And the other factor, and Derek touched on this as well, which is You know, the forbearance numbers themselves can be a little misleading potentially in that you can participate in a forbearance program but still be current on your payment. So, you know, that's something else to keep in mind. But at the time of that second mispayment, yes, we do need to make an estimate of what the ultimate claim rate will be on those new defaults. and Derek spoke to that early in the presentation about, you know, just the, as far as what that might look like and given our experience with natural disasters, et cetera, you know, we're not expecting a rate higher than our current default, the claim rate on the default is 7.5%, but we'll have to wait and see what available information we have at the point in time when we do make those estimates, which will likely see a fairly significant ramp up in the second quarter. I don't know, Derek, if you'd add anything else.

All right. Thank you. I covered it, Frank.

Okay. This is Rick. I might just add one other comment, which is I think just you have to think about right now where we're at. We're very, very early in the cycle. As Frank commented, there are people that are continuing to make their payment while they're in forbearance. We saw it on April 1st. We'll see what May 1st and what June 1st is. So the timing of all this is still early. But the interesting part is Frank covered the gap accounting is as they present themselves, we reserve, right? And we don't have material ID&Rs, so really those defaults have to present themselves and kind of qualify for our reserves from a gap accounting point of view. So the timing of this is still early to project. We would expect to see a dramatic increase in the second quarter just from the numbers, obviously, but how that period extends and how it plays out, you know, it's still early, guys. But we're watching all the metrics of the numbers, Smith.

Sure. I'm not asking you for your expectation of even what DTC is or how many forbearances. I'm just talking about the accounting. So, my point is, once a loan becomes delinquent and forbearant, would there be an additional reserve as those delinquencies age? Meaning, once you're in forbearance and you're in this two payment, you know, they have up to six months and then an automatic extension up to 12 months. As those get older, would you assume that The ultimate default to claim rate on those specific loans changes or because they're in a forbearance program stays the same as they get older until you see whether they care or not.

Sure. So a couple of technical refinements on what you said. Whether or not they're in a forbearance program doesn't impact the missed payments and the requirement under GAAP to establish the estimate of ultimate loss. But participating in a forbearance program and having missed two payments will impact our expectation of what the ultimate loss will be. And so that is a factor that comes into play. Now, the longer it stays delinquent, we're going to evaluate, you know, are they still participating in a forbearance plan? What are the facts and circumstances around those delinquencies? What's the profile? What's the overall economic landscape, et cetera? So it gets updated in each subsequent period, and we'll make those adjustments in each period based on the information at that time. But I think maybe what you're looking for, you know, unlike T. Myers, which has a very prescriptive after it misses its fourth payment, it now steps up to something else. Our reserving is not as prescriptive and it is based upon all available facts and circumstances at the time. And so we may adjust up or adjust down what we expect the ultimate loss may be. But that happens in each period. I hope that's helpful.

Frank, I was just going to add, just to be clear, I think in answer to your question, the way to think about it as the loans progress we would kind of assign a higher default to claim rate for those that remain in default because the way to think about it use that kind of initial percentage and then a portion of them cure they cure the remaining ones then you increase your default to claim rate as they age through time that's the way to think of it yeah if we if we got it right up front

then that all works its way through as these things age, right? And we wouldn't necessarily have a plus or minus for reserve. Obviously, there's never that degree of perfection, but we start with the best of it and then we continue to refine it as we see what cures and what continues.

Sure. Yeah, my question is just because this is so unique of there's an incentive or there's no call on someone to cure until six months. So, whether there are three or four payments delinquent if If they can defer on the end, there's just a different economic incentive for a person than there typically is in this situation.

That's a very interesting point, and we're watching the behavioral aspects of this very, very closely because, like we said, people are going into forbearance plans and still making payments. You've got to watch the industry statistics because they're a little bit confusing, but as we get through May, we'll have a much better feel. but I think the social aspect of this because ultimately this is not a payment forgiveness, this is a payment deferral and how it comes back around and you guys have read all the same articles, does it have to be paid back at the end of forbearance, can it be deferred and all the different waterfall workout options which are still well defined today but I think still evolving as to where they might be. The behavior of People that don't want to get behind or have forbearance, you know, kind of as part of the future. I think you're going to start to see some of that separate. But again, we don't know. It's so early. And how people take advantage of this program over a month or two, six months, 12 months, still to be determined.

All right. Well, thank you so much. And thank you for dealing with my annoying mortgage accounting questions. I appreciate it. Very good questions. Thank you.

And we will take our final question from Phil Stefano from Deutsche Bank.

Yeah, thank you guys for extending the call for so long. Hopefully just a couple of far-left nuanced questions and a fifth crystal for me. So, Rick, in your prepared remarks, you talked about the post the sale of Clayton in the real estate side, the expectation to grow certain businesses such as Tidal. Is that organic growth, inorganic growth, a mix of both? Strategically, over the long run, understanding the short run is much, much less clear. How should we think about what growth means?

Growth, we think of it as organic growth. We feel like you think about the title business, which many of you all know very well. It's an old legacy business driven by agency relationships. We're very, very focused on leveraging data and analytics and technology to drive our title business and leverage our MI relationships and our other market relationships to grow. So Brian and Eric and our sales team and operations team have been very focused on onboarding new clients, right? So we're growing that business through the addition of new clients and the expansion of existing relationships. And we have our sales force, kind of our entire sales force, focused on, you know, at an enterprise level looking at how we deepen relationships and expand relationships with our clients. Title and valuation are naturals right now, you know. We may see our REO kind of asset management business come back in the cycle. SFR, where we have a dominant market share in that business from a diligence perspective, I think we have a strong foothold. And we see broader opportunities across technology and real estate services. So where we sit today, it's organic, and we are head down focused on our customers. And the feedback I personally get, and I share this often, Feedback I personally get, Derek gets, Frank gets, we all get from our customers is they view us differently than just an MI. Does it make a difference on the MI decision? In some cases, yes. In some cases, it's neutral. But from a relationship point of view, it can make either the MI relationship combined with being able to serve them in a broader way, I think, provides us an opportunity to grow our businesses organically. Got it. Okay.

Thank you. Derek, in response to an earlier question, I got the impression, and please correct me if I misheard you, but it felt like 9% of the business was outside of the potential haircut for the FEMA disaster area. What exactly is that 9% if I understood that correctly? In my mind, forbearance is kind of widespread in every state in the FEMA disaster area, so what falls out?

Yeah, so what I was distinguishing, so 100% actually in those areas are given the haircut day one. So what I was getting into is as you progress through time, so the distinction being is once you're kind of beyond this initial 120 days under PMIRS-F, the initial date, the way it's drafted in order to continue to get that haircut, you have to be subject to a forbearance plan and you have to be in a state or an area that's eligible for individual assistance. And right now, right, so that's all I meant. And that's kind of when we talked about that PMIRES amendment, that's one of the kind of those open points. I would say PMIRES didn't really contemplate this. It really should be 100% of all those kind of forbearance loans. So more of a kind of a technicality, I think, in the PMIRES that we're trying to address.

No, perfect. That makes sense. Thanks for the clarification there and hope you guys continue to do well.

Thank you. And I will turn it over to CEO Rick Thornberry for final remarks.

Thank you. And, you know, I want to thank everyone for participating in our first-time-ever virtual call. Derek, Frank, and John and I are all sitting in very different places in this country right now. And our team pulled off, I think, a very successful kind of environment. I also want to wish you all and your families, I hope everyone's staying healthy and stays well given these challenging times. And I want to compliment our employees on just a phenomenal job. As I mentioned earlier, we asked everybody to leave their offices very quickly and go work from home. Everything was ready. They've done an amazing job. Our customers have commented often about it. So I think, you know, with that, you know, support. We look forward to continuing to have discussions as this environment plays out and look forward to talking to you all soon. Thank you for joining the call today and stay well.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.