Radian Group Inc.

Welcome to the Radiant Star Quarter 2021 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 touchtone phone. Please note that this conference is being recorded. I will now turn the call over to Senior Vice President, Investor Relations and Corporate Development, John Damian. Mr. Damian, you may begin.

Thank you and welcome to Radian's third quarter 2021 conference call. Our press release, which contains Radian's financial results for the quarter, was issued yesterday evening and is posted to the investor section of our website at www.radian.com. This press release includes certain non-GAAP measures that will be discussed during today's call, including adjusted pre-tax operating income, adjusted diluted net operating income per share, and adjusted net operating return on equity. In addition, specifically for our home genius segment, other non-GAT measures that will be discussed today include adjusted gross profit, adjusted pre-tax operating income or loss before allocated corporate operating expenses, and the related home genius profit margins. A complete description of all of our non-GAAP measures may be found in Press Release Exhibit F, and reconciliations of these measures to GAAP may be found in Press Release Exhibit G. And both exhibits are on the Investor section of our website. 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 Bremmer, President of Radian Mortgage. 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 2020 Form 10-K. 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 say that we continue to see strong growth in the housing and real estate markets driven by historically low interest rates and robust demand. And while we continue to closely monitor the pandemic and the economic environment, We are encouraged by the favorable credit trends within our insured portfolio that increasingly reflect the return to a more certain operating environment. Frank will discuss the details of our financial position shortly, but let me first share a few highlights and insights from the third quarter. We reported net income of $126 million, or 67 cents per share, for the third quarter, and adjusted diluted net operating income per share was also 67 cents. We grew our book value per share by 9% year-over-year. We achieved this growth even after accounting for more than $100 million in dividends that we returned to stockholders over the past year. For our mortgage segment, we remain focused on writing new business at attractive returns that we believe will generate long-term economic value and future earnings for Radian and its stockholders. During the third quarter, we wrote $26.6 billion of high-quality new mortgage insurance business, and our primary insurance and force grew by $4.3 billion from the second quarter to $241.6 billion at September 30th. As we noted last quarter, we believe the industry has transitioned to a more stable competitive environment. where we would expect to maintain a pro-rata share of the market over the long term with some expected quarter to quarter market share shifts across the industry. We have seen continued improvement in the credit performance of our portfolio with a 46% year-over-year decline in our total number of defaulted loans. We saw a 60% decline year-over-year in the number of new notices of default received in the quarter. The number of new notices of default during the second and third quarters were at or below pre-COVID levels. Strong cure activity has continued with cures outpacing new defaults for each month since June 2020. The cure to new default ratio in the third quarter of 2021 was 178%. As I've mentioned since the onset of the pandemic, the outstanding support by the government, GSEs, and industry in the form of forbearance programs for homeowners struggling to meet their mortgage payments has proven to be very beneficial to all stakeholders. As these forbearance programs began to expire at September 30th and beyond, we are working closely with servicers and the GSEs as they seek to successfully migrate these borrowers to a current status, including through the use of payment deferral programs or the appropriate workout solution, we expect that we will have greater visibility over the next few quarters into the ultimate resolution of the loans exiting forbearance programs. In terms of the overall housing market, we saw positive trends continuing in the third quarter. Based on September data from our own Radiant Home Price Index, continued strong housing demand and relatively limited supply in the market led to an annualized 17.6% increase and home prices across the country. We continue to expect the rate of home price appreciation to moderate over time, but we believe the combination of an improving economy, strong housing dynamics in terms of demand, supply, home values, and mortgage underwriting, relatively low mortgage interest rates, as well as strong income growth, are well aligned for a healthy and sustainable housing market. our new mortgage insurance business was 90% purchase volume in the third quarter versus only 71% a year ago. Based on updated market projections for 2021 mortgage originations, we now expect the private mortgage insurance market to be approximately $575 to $600 billion, which would be slightly lower than the record volume in 2020, but still represent the second highest MI volume year in history. Looking ahead, Total mortgage originations for 2022 are estimated to be approximately $3 trillion, reflecting a 10% increase in purchase originations and a 55% decrease in refinance activity. While the overall market is projected to be smaller in 2022 than 2021, the growth in the purchase market is positive for the mortgage insurance industry and is expected to fuel another strong market for private MI given the higher likelihood that purchase loans will utilize private mortgage insurance as compared to refinance loans. It is expected to be among the largest private MI markets in history. It is also important to highlight that the expected decline in refinance originations in 2022 is likely to result in improved persistency in our mortgage insurance enforced portfolio. Overall, we believe the improving macroeconomic conditions and strong home purchase market fueled by first-time homebuyers provide strong tailwinds for long-term growth in the economic value and projected future earnings of our mortgage insurance portfolio. Turning to our Home Genius segment, total revenues for the third quarter were $45.1 million, representing a 35% increase from the second quarter of 2021 and a 51% increase year-over-year. This was primarily driven by an increase in our title revenue, which grew 106% year-over-year, as well as growth in our valuation business. As we discussed during our Home Genius Investor Day in June, we believe Home Genius has the potential for significant value creation and financial contribution going forward, and Frank will discuss our progress against our financial projections. In terms of capital strength, at September 30th, Radian Group maintained a strong capital position with $1 billion of total holding company liquidity. Additionally, at September 30th, Radian guarantees P. Myers excess available assets was $1.7 billion, or a cushion of 49%. Frank will provide additional details on our capital actions and position in a moment. Turning to the regulatory and legislative landscape, Since assuming the role of acting director of FHFA in June, Sandra Thompson has taken meaningful steps to prioritize access to the portability of mortgage credit. Notably, the recent lifting of the preferred stock purchase agreement caps on layered risks, the newly proposed amendment to the enterprise capital framework to reduce GFC required capital levels, and the various direct market actions such as eliminating The 50 basis point adverse market fee for refinance loans and expanding eligibility for the refi now and refi possible programs represent a notable shift in focus. We expect the FHFA's efforts to expand access to home ownership to continue. And as the only source of private capital currently dedicated to first loss mortgage credit protection, We look forward to working with the FHFA and the GSEs to identify and pursue thoughtful and meaningful opportunities to increase sustainable homeownership among low and moderate income borrowers. Ultimately, this is good for the economy and for homeownership and given our strong alignment with first-time homebuyers for the mortgage insurance industry as well. At Radian, it aligns perfectly with our values and overall mission to ensure the American dream of homeownership. Now I'd like to turn the call over to Frank for details of our financial position.