Essent Group Ltd

NYSE:ESNT

Earnings Call Analysis

Essent Reports Steady Q3 with Strong Metrics

Essent's third quarter results were consistent year-over-year, with net income and diluted per-share earnings both landing at $178 million and $1.66, respectively. The annualized return on average equity stood at 15%, while book value per share rose 13% to $44.98, and insurance in force increased by 7% to $239 billion. They benefit from higher investment income due to rising interest rates and expect this trend to support elevated persistency through year-end. Mortgage insurance remains less impacted by housing transaction activity and presents a solid credit quality. Strategic investments in long-term growth are prioritized, such as the expansion of their title and settlement services, with a particular emphasis on building infrastructures, like the recent title agent channel focusing on large states and lender services aiming for a national footprint. The balance sheet is strong, highlighted by $5.4 billion in cash and investments and a new $250 million share repurchase program reflecting their confidence.

Strengthening Financial Fundamentals

In the latest quarter, the company's U.S. mortgage insurance business showcased a solid foundation with a statutory capital amounting to $3.3 billion and a favorable risk-to-capital ratio of 10.3:1. This was bolstered by an increase in statutory capital by $181 million over the past year, despite distributing $300 million as dividends to its holding company.

Commitment to Shareholder Returns

The company has maintained its commitment to returning value to shareholders, evidenced by a cash dividend payment of $26.5 million and strategic share buybacks totaling $5 million under a new authorization. These moves reflect a long-term philosophy centered around investing in the core business and managing returns on equity through careful, considered capital deployment.

Consistent Growth and Performance

A testament to the company's robust performance, the book value per share has shown remarkable growth with a compound annual growth rate of approximately 19% since its IPO. This is attributable to high-quality earnings, strong balance sheet, stable liquidity, and an uptick in net investment income resulting from higher interest rates and healthy cash flows from operations.

Strategic Pricing Power

Management emphasized the underappreciated pricing power they now hold within the mortgage insurance sector, which has enabled them to effectively shape their portfolio and create a win-win-win scenario for borrowers, lenders, and the company alike.

Investing for Long-term Growth

The acquisition of Title is expected to be a major growth driver in the long term. The company aims to replicate its previous success in scalable foundation-building, emphasizing a risk-control oriented approach over short-term gains. Investments will aim to develop infrastructure similar to Essent, with the understanding that building robust business lines is a time-intensive process, set to unfold transparently over the coming quarters.

Navigating Market Concentrations and Risks

Buydowns, a source of concern for some investors due to their potential risk implications, represent a minor 3% to 4% of the company's originations and are considered immaterial in the overall portfolio. Furthermore, the loans are underwritten at full rates, mirroring the company's cautious stance similar to their approach with student loans. The management does not currently foresee any major concentration issues arising, thus projecting confidence in this aspect of their business model.

Earnings Call Transcript 2023-Q3

[Operator]

Thank you for standing by. My name is Adam, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Essent Group Limited Third Quarter Earnings Call. [Operator Instructions]. I'd now like to turn the call over to Phil Stefano. Please go ahead.

[Philip Stefano, executive]

Thank you, Adam. Good morning, everyone, and welcome to our call. Joining me today are Mark Casale, Chairman and CEO; and David Weinstock, Chief Financial Officer. Also on hand for the Q&A portion of the call is Chris Karen, President of Essent Guaranty. .

Our press release, which contains Essent's financial results for the third quarter of 2023 was issued earlier today and is available on our website at essentgroup.com. Our press release this quarter includes non-GAAP financial measures that may be discussed during today's call. A complete description of these measures and the reconciliation to GAAP may be found in Exhibit O of our press release.

Prior to getting started, I would like to remind participants that today's discussions are being recorded and will include the use of forward-looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties, which may cause our actual results to differ materially. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release, the risk factors that included in Form 10-K filed with the SEC on February 17, 2023, and any other reports and registration statements filed with the SEC, which are also available on our website. Now let me turn the call over to Mark.

[Mark Casale, executive]

Thanks, Phil, and good morning, everyone. Earlier today, we released our third quarter 2023 financial results, which continue to benefit from both favorable credit performance and the current interest rate environment. As mentioned last quarter, rising interest rates continue to drive higher investment income and elevated persistency, which has supported our revenue growth this year. As we look ahead, we remain encouraged by the resilience of the housing and labor markets. .

The housing supply and demand imbalance and [indiscernible] demographic trends are expected to provide foundational support to home prices over the longer term. While economic uncertainty remains, we continue to believe the strength of our balance sheet and our Buy, Manage and Distribute operating model should position us well to be prepared for a range of economic scenarios.

And now for our results. For the third quarter of 2023, we reported net income of $178 million compared to $178 million a year ago. On a diluted per share basis, we earned $1.66 for the third quarter compared to $1.66 a year ago, and our annualized return on average equity was 15%.

As of September 30, our book value per share was $44.98, an increase of 13% from a year ago. As of September 30, our insurance in force was $239 billion, a 7% increase versus a year ago. Our 12-month persistency on September 30 was 87%, and approximately 70% of our in-force portfolio has a note rate of 5% or lower. We expect that the current level of rates should support elevated persistency through the end of this year.

As a portfolio business, mortgage insurance is less beholden to transaction activity in other sectors of the housing ecosystem. The credit quality of our insurance in force remains strong, with a weighted average FICO of [ 746% ] and a weighted average of original LTV of 93%. Regulatory guardrails, including the qualified mortgage rule and prudential GSE underwriting guidelines has significantly improved industry credit quality and performance since the global financial crisis.

In addition, credit performance should continue to be supported by embedded home price appreciation and implied mark-to-market values, particularly for the 2021 and prior vintages, which represent approximately 60% of the overall book.

On the business front, while mortgage lenders remain challenged given the interest rate environment, we continue to focus on activating new accounts. We believe it is very important to identify and activate new customers while also continuing to support our current customers. Year-to-date through October 31, we activated 95 new customers. We take a long-term approach in managing Essent and best positioning our franchise, especially during times like now, as the lender landscape continues to shift and evolve.

As of September 30, Essent Re third party year-to-date revenues were approximately $60 million, while third-party risk in force was $2.2 billion, Essent Re continues to leverage our expertise in mortgage credit and the Bermuda platform to deliver complementary earnings to the Essent franchise. Our title and settlement services operation incurred a pretax loss of approximately $4 million in the third quarter. As we continue to work through the title integration, we will be taking a long-term approach to building out the business with a focus on risk controls and operational efficiency.

Cash and investments as of September 30 were $5.4 billion. Our new money yield in the third quarter was over 5%, while our annualized investment yield was 3.6% for the third quarter, up from 2.7% a year ago. Net investment income was $47 million in the third quarter, up approximately 44% from the same quarter last year. Higher investment income is another way that our valve business is levered to higher rates. Our balance sheet remains strong with $4.8 billion in GAAP equity, access to $1.6 billion in excess of loss reinsurance and over $1 billion of available holding company liquidity.

During the third quarter, we closed on our ninth Radnor Re ILN transaction. The utilization of programmatic reinsurance helps to diversify our capital resources while seeding a meaningful portion of our [ mezzanine ] credit risk. With a trailing 12-month operating cash flow of $720 million and a mortgage insurance underwriting margin of 75%, our franchise remains well positioned from an earnings, cash flow and balance sheet perspective. Our strong financial performance and capital position enable us to take a balanced approach between capital deployment and distribution.

Year-to-date through October 31, we repurchased approximately 1.4 million shares for $57 million. I am pleased to announce that our Board has authorized a new $250 million share repurchase program and has approved a common dividend of $0.25. We continue to see our dividend as a meaningful demonstration of the confidence we have and the stability of our cash flows, the strength of our capital position. Now let me turn the call over to Dave.

[David Weinstock, executive]

Thanks, Mark, and good morning, everyone. Let me review our results for the quarter in a little more detail. For the third quarter, we earned $1.66 per diluted share compared to $1.61 last quarter and $1.66 in the third quarter a year ago. Net premium earned for the third quarter of 2023 was $247 million and included $16.9 million of premiums earned by Essent Re on our third-party business, and $20.6 million of premiums earned by the title operations acquired on July 1.

The average base premium rate for the U.S. mortgage insurance portfolio [indiscernible] third quarter was 40 basis points, consistent with last quarter. The net average premium rate on the U.S. mortgage insurance portfolio was 35 basis points in the third quarter of 2023, up 2 basis points from last quarter, primarily to the net impact of the successful ILN tender in the second quarter. Ceded premium decreased to $30.3 million in the third quarter compared to $39.5 million in the second quarter due to expenses incurred last quarter related to the tender and lower outstanding insurance-linked notes during the third quarter.

Net investment income increased $1.8 million or 4% in the third quarter of 2023 compared to last quarter, due primarily to higher yields on new investments and floating rate securities resetting to higher rates. Other income in the third quarter was $5.6 million compared to $8.1 million last quarter. The largest component of the decrease was the change in the fair value of embedded derivatives in certain of our third-party reinsurance agreements.

In the third quarter, we recorded an $898,000 decrease in the fair value of these embedded derivatives compared to a $2.7 million increase recorded last quarter. The provision for loss and loss adjustment expense was $10.8 million in the third quarter of 2023 compared to $1.3 million in the second quarter of 2023 and $4.3 million in the third quarter a year ago. At September 30, the default rate on the U.S. mortgage insurance portfolio was 1.62%, up 10 basis points from 1.52% at June 30, 2023.

Other underwriting and operating expenses in the third quarter were $54.8 million and include $13.5 million of title expenses. Expenses for the third quarter also includes title premiums retained by agents of $13.2 million, which we are reporting separately in our income statement. Our consolidated expense ratio was 27% this quarter. Our consolidated expense ratio excluding title, which is a non-GAAP measure, was 18% this quarter. A description of our consolidated expense ratio excluding title and the reconciliation to GAAP may be found in Exhibit O of our press release. As a reminder, our consolidated expense ratio was 20% for both the second quarter and third quarter a year ago.

As Mark noted, our holding company's liquidity remains strong and includes $400 million of undrawn revolver capacity under our committed credit facility. At September 30, we had $425 million of term loan outstanding with a weighted average interest rate of 7.07%, up from 6.87% at June 30. At September 30, 2023, our debt-to-capital ratio was 8%. During the third quarter, Essent Guaranty paid a dividend of $60 million to its U.S. holding company. Based on unassigned surplus at September 30, the U.S. mortgage insurance companies can pay additional ordinary dividends of $290 million in 2023. At quarter end, the combined U.S. mortgage insurance business statutory capital was $3.3 billion, with a risk-to-capital ratio of [ 10.3:1 ]. Note that statutory capital includes $2.3 billion of contingency reserves at September 30. Over the last 12 months, the U.S. mortgage insurance business has grown statutory capital by $181 million, while at the same time paying $300 million of dividends to its U.S. holding company.

During the third quarter, Essent Group paid a cash dividend totaling $26.5 million to shareholders, and we repurchased 102,000 shares for $5 million under the authorization approved by our Board in May 2022. Now let me turn the call back over to Mark.

[Mark Casale, executive]

Thanks, Dave. In closing, Essent continues to generate high-quality earnings, while our balance sheet and liquidity remains strong. Higher interest rates to turnover of our investment portfolio and robust operating cash flows have contributed to strong net investment income growth this year, supporting our revenue [indiscernible].

Earlier this week, we celebrated the tenth anniversary of Essent's initial public offering on the New York Stock Exchange. Since our IPO, Essence book value per share has grown at a compound annual growth rate of approximately 19%, and Essent shares have delivered an annualized total return of approximately 12%. And I want to thank our team for their dedication and contribution to Essent's achievement and growth over the last decade. I'd also like to thank our customers and shareholders for your continued support, enabling us to fulfill Essent's mission to promote and serve affordable and sustainable homeownership. Now let's get to your questions. Operator?

[Operator]

[Operator Instructions]. Your first question comes from the line of Bose George with KBW.

[Bose George, analyst]

I wanted to ask just about buybacks. Has your sort of -- tone or view on buybacks changed over the last year? Just -- could we see you being a little more active here? Or just any thoughts there would be great.

[Mark Casale, executive]

Bose, it's Mark. I think you have to think about buybacks within kind of the context of how we manage capital in totality. So generally, you've heard me say this in the past, we're kind of a retain and invest type mentality. So always, we're going to look from our capital position to invest in the core business. We've continued to invest in Re over the years. We've obviously invested entitled this year. And in terms of also looking to manage ROEs over the longer term. And the way to do that is obviously increase the numerator. I think given our capital position and growth, there's clearly some excess capital in the system.

And part of that, the way we manage ROE is primarily the dividend, right? And we're pretty committed to the dividend. We think that's a [indiscernible] kind of tangible evidence to our shareholders of the cash generation of the business, which is really strong. And I think on repurchases there, I think we've -- it has become a little bit more dynamic. So I think we've changed a little bit over the past kind of year goes. We bought back $250 million back in 2021 over 11 months. And in my view, that was a little fast. And I think now we're going to a little bit more dynamic. We're going to look at it -- we have a 10b5 plan out there, but we look at it every quarter, and then we're looking and saying, [indiscernible] growth opportunities in the core businesses now, what's the outlook for losses, right? Where do we see the portfolio going, right? So you always want to have capital around [ PMIERs ] and other potential capital needs. And then finally, where is the stock trading, right? So I think our view is we're all about growth in book value per share, and if we can buy our shares around book value or below book value, we're probably going to be a little greedy there and probably a little less so when it trades up.

So I think that depends. So hopefully, that gives you a little bit more context. So it's not kind of a mechanical, let's just remove share count. I think we're going to be a lot more thoughtful about it. And again, it's just our view capital begets opportunities. And given the world is always uncertain and probably a little bit more uncertain over the next 12 to 18 months with what's going on in the world, where rates are, we have an election coming up in less than 12 months. So it served us well in the past to maintain a strong capital position because you never know where the opportunities are going to come from.

[Bose George, analyst]

Okay. Great. That's very helpful. And then switching, I wanted to just ask about the proposed changes to the Bermuda tax code. Is that something that could impact you? Just any color there would be great.

[Mark Casale, executive]

Well, it's pretty early, right? I mean we've seen potential changes come and go over the past 10 years. So it's too early -- I would say it's too early to tell. There could be some impact to us, but I don't think it's really -- it's not really material longer term to kind of the growth of Essent. But again, stay tuned for more. .

[Operator]

Your next question comes from the line of Mihir Bhatia with Bank of America.

[Mihir Bhatia, analyst]

Maybe to start with on pricing. Obviously, always a big topic for investors. Just how would you characterize the current pricing environment? Anything changed quarter-over-quarter there?

[Mark Casale, executive]

No, I think it's been pretty consistent. Really over the last 6 to 12 months in terms of just where it is in terms of where we see it in terms of our earned premium yield. Like we had mentioned a while ago, here that we wanted to see new pricing for us get closer to where the base premium yield. And we're there now. And so I think the unit economics of the business are good. .

In terms of pricing, though, again, I'd like to take a step back and just try to give investors a little bit more context because I'm not sure -- the change in pricing has really is appreciated by the investor community. So we always talk about 3 changes to the business model since the GFC, right? You have reinsurance, which has out the [indiscernible] risk, which we think is important. There's the regulatory changes that are substantial, right, qualified mortgage, the strength of the GSE systems, forbearance, all those things have helped the business. I think the pricing engines have been a significant change to the industry. And the reason is it's given all of the MIs a lot more flexibility and how they can bring price to the consumer. And I think because of that, I think in the past, investors have said, well, there's not a lot of discipline in the industry.

And I think that, again, it's not appreciated just how the pricing was really brought to the consumer 5 years ago, in order for a price change to be made in the industry, you had to refile in all 50 rates, you had to change your card, one card, you had to usually take it to 2 or 3 of the top banks in the country. And really, they decided where -- because they didn't have this -- there was a system, the inability of their systems to program in like 6 different cards, so they could only program in 1 card. [indiscernible] going to happen here. They're going to program in the lowest card. So they're going to get 6 cards. And whoever had the lowest, everyone was forced to that. So you didn't have a lot of flexibility. So people confuse that with a lack of discipline per se, but it's really just kind of -- it's a little bit of game theory, right, in terms of when you put 6 guys up against 1 lender. The lender had the pricing power in the industry. And I think with the engines, that's changed significantly. Now we all file a range of rates, we can change rates much more frequently. It's really become what we said it was going to be, which is a risk management tool. It allows all the MIs to pick their spots, right? People have different geographical preferences, different parts of the capital structure, FICO. I think that's great. The lenders win, and the borrowers win.

But just, again, give you more evidence over the last 12 months from here, we must have raised pricing 12x different times, like in different places, maybe a tail here, an MSA there. Once in a while across the board, if that was under the old card system, we would have had 1 shot at raising pricing. And whatever shot we had would have been mitigated by the competitive factors. And again, I think it's underappreciated. I think there's a form of pricing power with the mortgage insurers now. And again, if you just look at our -- and it's still good economics to the borrower. The borrower wins, the lenders win, and I think MIs now have the chance to kind of shape their portfolios and pick the spots where they want to be in much similar to how other insurance companies operate.

[Mihir Bhatia, analyst]

Got it. I really appreciate that answer. So to take a step back. On the -- maybe switching gears a little bit to the title side. And look, I understand you're building that business. It's a long-term play for you. It's not about a quarter or something like that. But as you position that business for long-term success. Is the idea here in the near term, the focus, hey, we need to build out the infrastructure for the next few quarters, a little bit of an investment period before we start really driving revenue growth. Maybe just talk about what you expect. How you're looking at that business for the next 2, 4 quarters even as you look at the long term?

[Mark Casale, executive]

No, it's fair enough, right? I mean I think that you did hit the nail on the head. It is going to be a longer-term build. Very much like Essent, and I think I alluded to it on maybe the February call. But the acquisition of Title was not dissimilar to us buying the Triad platform back in 2009. It kind of gave us that base to build off. We had [indiscernible] some exceptional employees. And when you kind of marry the platform and the folks from Triad that came over to Essent with the existing Essent folks, that really laid the foundation for building of Essent. And here, that was in 2009 -- and I was probably 18 -- almost 24 months from starting to raise the money. And that's 2009, we didn't break even in 2012. So when we came public in 2013, we were already fully formed, and that's what investors got to view.

This is going to play out differently, right, because it's going to play out in public. We're going to be very transparent. But in order to build out these type of businesses, it's going to take time. We acquired a platform. We've got some really good folks, right, a really good team. But in order for us to build it and have it to like Essent infrastructure, we're going to have to invest. We're very risk and control oriented. I mean, you're talking -- this is a company where we hired our Head of Internal Audit before we hired our first salesperson. So we're very much control oriented. And there's a lot of risk entitled in terms of the search process, the curative process, the closing and funding. I think from the 30,000 feet people think there's not risk in Title and it's entirely bad premise [indiscernible] there's risk and we have to understand it. So we're going to build it from the inside out, and we're going to take our time. It's going to play out. I'm going to be transparent, but we're not going to [indiscernible] on investments in order to show quarterly results. So we have to report every quarter. We will report every quarter. We'll talk to you about it, but we're not going to change the approach that build us and taking a step back to me here again, think about it, right? This is a company $150 million a quarter we're earning cash flows, $600 million, $700 million a year for us to take a few bucks to invest in a business that has the potential of on the title side. I think it's a really good risk return trade-off, risk reward trade-off for shareholders. So again, that's how we'll continue to look at it, and we'll certainly -- we'll let you know how the journey goes every 90 days.

[Operator]

[Operator Instructions] Your next question comes from the line of Rick Shane with JPMorgan.

[Richard Shane, analyst]

Two questions on 2 pretty different topics. Mark, 1 of the things in terms of the Title insurance business, and I'm going to draw an analogy here. 20 years ago when Capital One got into the building depository franchise. One of the things that they emphasized was that scale was not or efficiency was not a function of being [indiscernible] having a national footprint but being concentrated in particular regions where they could generate substantial market share. How do you guys look at the Title expansion? Do you want to be a national Title Insurance company? Or is the plan to be really concentrated regionally as you build the business?

[Mark Casale, executive]

Yes. I think the answer is both. And the reason why, Rick, really it's the business and as we acquired 2 separate businesses. So we're in the process of putting it into 1 kind of functional organization, as entitled. So we'll have the agency services channel, which will service title agents. And that will be focused on large states, right? I mean it's pretty obvious where the premiums are coming from Florida, Texas, within the Southeast, parts of the Southwest and Northeast -- and there are -- and so we'll focus around that and build around that [indiscernible] service has 200 agents that they service today. So it's really tiny. We'll grow that out, and we'll scale that out very similar to how we scale out online, right? You go and you hire good salespeople, salespeople go and call on title agents. And again, it doesn't happen overnight, right? This took us a long time on the MI side, but we're slow and steady wins the race. So we'll attack it on the agency services that way. .

[indiscernible] -- it's a lot more geared at centralized refinance. So it's a lot more geared to lenders. So that is national buy. So it's a 50-state title and settlement services business, it's quite a valuable platform. And I think as we continue to invest in the infrastructure there, we will offer that out to our key lenders. We're not at that phase right now. I mean they do work with lenders. But I think we really want to make sure it's kind of firing on all cylinders. So we'll have kind of 2 channels, agency services, lender services. It will be supported by an operational group. But you can see there, it's going to be regional. It is almost the agency services will be much more regionally targeted where the lender services will be more of a national footprint.

[Richard Shane, analyst]

Got it. Okay. That's helpful. And then the other question, and we've been asking this in a few different ways, but very unique time volumes, particularly concentrated in purchase given the limited supply of existing home stock for sale, particularly concentrated in new home sales. That drives mortgage originations, particularly through builder channels and there tend to be some subsidies there in terms of buydowns. Curious how you're approaching that, in particular, the risk associated with buydowns, whether they are short term or permanent?

[Mark Casale, executive]

Yes. I mean, I think with buydowns. One, taking a step back, Rick, it's probably 3% or 4% of our originations has buy downs in and so it's not super material. And remember, we underwrite that [indiscernible] we've had some more questions around student loans, same thing with student loans, right? We underwrite those assuming they're going to pay back the loan. So there's some concentration, I think, around builders because clearly, they're not building a lot in the Northeast because there's not a lot of land. So it's always going to be more Southwest, Southeast a little bit of on the West. But we don't see any big concentration issues or things like that.

I think it's really -- 1 of the things we've gotten asked this question too is just there's not enough supply in the country. So the fact that homebuilders are putting supply out, I think longer term, that's good, very good for the homebuilders. And clearly, in most of these are obviously first-time home buyers. So it's good for [indiscernible], but certainly, it's the concentration. It's certainly something you had to look at, but it's not something we're concerned about at this time. And Chris has a few words on this, too.

[Christopher Curran, executive]

Rick, when you look at the buy down product, that certainly we're ensuring from the builders, the majority of those buydowns are permanent. So in a way, it is beneficial to, I'll call it, the financial makeup of the borrowers, certainly having additional cash flow for them. So that is 1 certainly a benefit of the permanent nature of these buydowns and certainly by extension that will benefit the credit performance as well.

[Richard Shane, analyst]

Got it. Okay. And Mark, I think on a personal level, there are some congratulations in order as well.

[Mark Casale, executive]

Thank you. Yes, that's why we're having the call on Thursday because my daughter is getting married on Saturday. I have the rehearsal dinner tonight. So I was not allowed to have the call tomorrow. So that's why I appreciate some of our competitors. They were very gracious in moving their times. But yes, thank you Rick.

[Operator]

Your next question comes from the line of Eric Hagen with BTIG.

[Eric Hagen, analyst]

Congratulations, Mark. A quick modeling question upfront. You feel like the ceded premium of 5 basis points is a good way to think about modeling that going into next year?

[Christopher Curran, executive]

It's Chris. Yes, I think that's a reasonable range. I mean, really, when you look at certainly our history within in that range, so that's reasonable from a modeling perspective.

[Eric Hagen, analyst]

Okay. Great. There's always kind of 2 dimensions of risk to think about, right? There's the borrower risk and then there's the asset level risk. Like which 1 would you say your may be more sensitive to right now and whether you think -- like how you adjust for that and how it factors into the risk-adjusted return that you think you're picking up right now?

[Mark Casale, executive]

I think it's a good -- it's a really good question. I think on the portfolio, it's clearly around the asset risk, right? It's already you've already underwritten the mortgage home prices can fluctuate, borrowers could not pay and then you have severity issues. So I think we're more focused because you can't control that. So I think we're more focused there on the asset risk. We feel pretty good with that, Mike, because we have 75% mark-to-market, we have a lot of embedded HPA. And clearly, we talked about the persistency angle helping us. And I think also -- so for new originations, clearly, right? I mean it's going to be higher DTI's obvious with 7%, 8% mortgages. So you're much more focused. You're not going to have and certainly not going to have that HPA growth. It's going to be, in our view, probably more flattish over the next 3 to 4 years. So I think it's a little bit more on the borrower risk on that side.

[Operator]

I will now turn the call back over to [indiscernible] for closing remarks.

[Unknown Executive]

I'd like everyone to thanks. Thanks, everyone, for joining us, and have a great day. .

[Operator]

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.