Radian Group Inc

NYSE:RDN

Earnings Call Transcript 2021-Q3

[Operator]

Welcome to the Radian’s Third Quarter 2021 Earnings Call. My name is Jenny and I will be your operator for today’s call. [Operator Instructions] 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.

[John Damian, Investor Relations]

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 Investors 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 Homegenius segment, other non-GAAP 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 Homegenius profit margins. A complete description of all of our non-GAAP measures maybe found in press release Exhibit F and reconciliations of these measures to GAAP maybe found in press release Exhibit G and both exhibits are on the Investors 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 Brummer, 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 a discussion of these risks, please review the cautionary statements regarding forward-looking statements included in our earnings release and the risk factors included in our 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.

[Rick Thornberry, Chief Executive Officer]

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 a 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 $0.67 per share for the third quarter and adjusted diluted net operating income per share was also $0.67. We grew our book value per share by 9% year-over-year. We achieved this growth even after accounting for more than $100 million of 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 in-force grew by $4.3 billion from the second quarter to $241.6 billion at September 30. 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 60% decline year-over-year in the number of new notices of default received in the quarter. In fact, 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 have 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 30 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 Radian Home Price Index continued strong housing demand and relatively limited supply in the market led to an annualized 17.6% increase in home prices across the country. We continue to expect the rate of home price appreciation to moderate over time and 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 our 2021 mortgage originations, we now expect the private mortgage insurance market to be approximately $575 million 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 in-force portfolio. Overall, we believe the improving macroeconomic conditions and strong home purchase market, fueled by first-time homebuyers, provides strong tailwinds for long-term growth in the economic value of projected future earnings of our mortgage insurance portfolio.

Turning to our Homegenius 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 Homegenius Investor Day in June, we believe Homegenius 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 30, Radian Group maintained a strong capital position with $1 billion of total holding company liquidity. Additionally, at September 30, Radian Guaranty’s PMIERs 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 and affordability of mortgage credit. Notably, the recent lifting of the preferred stock purchase agreement caps on layered risk, the newly proposed amendment to the Enterprise capital framework to reduce GSE-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 hospital programs represent a notable shift in focus.

We expect the FHFA’s efforts to expand access to home ownership to continue. 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 home ownership.

Now I would like to turn the call over to Frank for details of our financial position.

[Frank Hall, Chief Financial Officer]

Thank you, Rick and good morning everyone. To recap our financial results issued last evening, we reported GAAP net income of $164.1 million or $0.67 per diluted share for the third quarter of 2021 as compared to $0.80 per diluted share in the second quarter of 2021 and $0.70 per diluted share in the third quarter of 2020. Adjusted diluted net operating income was $0.67 per share in the third quarter of 2021 compared to $0.75 in the second quarter of 2021 and $0.59 in the third quarter of 2020.

I’ll now turn to the key drivers of our revenue. As Rick mentioned earlier, our new insurance written was $26.6 billion during the quarter compared to $21.7 billion in the second quarter of 2021 and $33.3 billion in the third quarter of 2020. New insurance written for purchase transactions was $23.9 billion, an increase of 2% year-over-year and 43% compared to the second quarter of 2021. Purchase volume accounted for 90% of our total new insurance written for the third quarter, an increase from 77% of volume in the prior quarter and 70.5% in the third quarter of 2020. Primary insurance in-force increased $4.3 billion during the quarter to $241.6 billion. On a year-over-year basis, primary insurance in-force has declined approximately 2%, primarily driven by sustained low persistency resulting from policy cancellations during a low interest rate, high refinance period. It is important to note, however, the mix shift of our in-force portfolio during this past year, monthly premium insurance in-force, which drives the majority of our earned premiums, has grown 6% year-over-year compared to a 25% decline in single-premium insurance in-force. It should also be noted that prepayments in single-premium insurance in-force enhances our realized returns as the life over which the single premium is recognized is shortened.

Our quarterly annualized persistency rate was 67.5% this quarter, an increase from 66.3% in the second quarter of 2021 and 60% in the third quarter of 2020. The year-over-year increase in quarterly annualized persistency is primarily driven by lower refinance activity in the third quarter of 2021 as compared to the same quarter last year. While persistency is expected to improve during the remainder of 2021, we also expect persistency to remain below our historic long-term levels for the foreseeable future given the current pace of refinance activity.

Moving now to our earned premiums and other revenues, total net premiums earned were $249.1 million in the third quarter of 2021 compared to $254.8 million in the second quarter of 2021 and $286.5 million in the third quarter of 2020. The decrease on both a linked quarter and year-over-year basis are primarily driven by lower accelerated premium recognition due to single-premium policy cancellations as well as a continued decline in our in-force premium yield. Title premiums increased to $12.3 million in the third quarter of 2021 compared to $7.7 million in the second quarter of 2021.

Slide 10 shows the mortgage insurance premium yields trend over the past five quarters. Our direct in-force premium yield was 40.3 basis points this quarter compared to 41.1 basis points last quarter and 43.2 basis points in the third quarter of 2020. With regard to pricing on new business, we remain focused on maximizing projected economic value and generating attractive risk-adjusted returns. And while we expect to generate a pro rata volume overall, we target the volume with the highest economic value.

Our Homegenius segment revenues were $45.1 million for the third quarter of 2021, representing a 35% increase compared to the second quarter of 2021 and a 51% increase compared to the third quarter of 2020. Our reported home genius pretax operating loss before allocated corporate operating expenses was $600,000 for the third quarter of 2021 compared to a loss of $4.5 million for the second quarter of 2021. Our reported Homegenius adjusted gross profit for the third quarter of 2021 was $17.9 million compared to $11.7 million for the second quarter of 2021. A reconciliation of these items can be found on Exhibit G.

As noted on Slide 22, we continue to make progress against our targets as communicated earlier this year, with Homegenius revenues still tracking towards our goal of $150 million for 2021. Our target for pretax operating income before allocations was updated primarily to reflect adjustments made this quarter to recognize the impact of company-wide incentive expense approvals. Our investment income this quarter of $36 million was relatively flat compared to the prior quarter and same quarter prior year due to the lower investment yields, which were partially offset by additional investment balances from underwriting cash flow. At quarter end, the investment portfolio duration was approximately 4.5 years, unchanged from the prior quarter.

Moving now to our loss provision and credit quality, as noted on Slide 13, the mortgage provision for losses for the third quarter of 2021 was $16.8 million, an increase compared to $3.3 million in the second quarter of 2021 and a decrease compared to $87.8 million in the third quarter of 2020.

As shown on Slide 14, we had approximately 8,100 new defaults in both the third and second quarters of 2021 compared to approximately 21,000 in the third quarter of 2020. Also, as noted on Slide 13, the provision for losses for the third quarter 2021 includes a positive development on prior defaults of $16.5 million. This positive development was primarily driven by more favorable trends in cures than originally estimated, which resulted in a reduction in certain default-to-claim rate assumptions, related to defaults first reported prior to the onset of the COVID-19 pandemic. We maintained our prior quarter assumptions for defaults reported since the start of the pandemic, including the default to claim rate assumption on new defaults at 8% for the third quarter of 2021. We continue to closely monitor the trends and cures and claims for that portion of our default inventory, including the resolution of COVID-19 related forbearance programs.

As shown on Slide 16, 67% of all defaults were reported to be in a forbearance program as of September 30, 2021. Based on information provided by servicers, we currently expect that substantially all defaults as of September 30, 2021, under a forbearance plan will reach the scheduled expiration of their forbearance term by the end of the third quarter 2022 and that approximately half of this population will reach that expiration before year-end 2021. These estimates are based on the date each loan was reported as entering forbearance and the maximum forbearance term available to the borrowers at that time. As a reminder, forbearance programs are positive for our industry and for homeowners as they are intended to keep people in their homes through what is expected to be a temporary economic disruption. It should also be noted that approximately 89% of new defaults from the second quarter of 2020 and 85% of new defaults from the third quarter 2020 have cured as of the end of October.

Now turning to expenses. Other operating expenses were $86.5 million in the third quarter of 2021, flat to the second quarter of 2021 and increased compared to $69.4 million in the third quarter of 2020. The increase in other operating expenses as compared to the prior year is primarily related to an increase in incentive compensation expense, including long-term share-based incentive compensation as well as a $6.7 million decrease in ceding commissions associated with lower single premium acceleration. It should also be noted that as Homegenius revenues and earnings continue to grow, our total expenses will grow as well.

Over the next year, we expect consolidated normalized quarterly operating expenses to grow from approximately $72 million to approximately $85 million which will depend largely on the timing and the execution of our Homegenius segment revenue growth strategy. Our mortgage segment, however, should have relatively flat quarterly expenses at just under $60 million.

Moving now to taxes. Our overall effective tax rate for the third quarter of 2021 was 21.8%. Our annualized effective tax rate for 2021 and before discrete items remains generally consistent with the statutory rate of 21%.

Now moving to capital and available liquidity. Radian Guaranty’s excess available assets over minimum required assets was $1.7 billion as of the end of the third quarter, which represents a 49% PMIERs cushion. As of September 30, 2021, we have reduced Radian Guaranty’s PMIERs minimum required asset requirements by $1 billion by distributing risk through both insurance-linked notes reinsurance and other third-party reinsurance arrangements as noted on press release Exhibit L. And subsequent to our third quarter end, Radian announced the pricing of a $484.1 million aggregate principal amount of mortgage insurance-linked notes issued by Eagle Re 2021-2 Limited. In connection with this transaction, Radian Guaranty will receive $484.1 million of fully collateralized aggregate excess of loss reinsurance coverage from Eagle Re at closing. The excess of loss reinsurance will cover mortgage insurance losses on new defaults on an existing portfolio of eligible policies with risk in force of $10.8 billion that were issued predominantly between January 1, 2021 and July 31, 2021.

For Radian Group, as of September 30, 2021, we maintained $768 million of available liquidity compared to $923 million as of June 30, 2021. The primary driver of this decline was share repurchase activity, which I will discuss in more detail in a moment. Along with our recurring shareholder dividend payment, partially offset by a $36 million ordinary dividend paid by our Radian Reinsurance subsidiary. Total liquidity, which includes the company’s $267.5 million credit facility, was $1 billion as of September 30, 2021. It is important to reiterate that most of the cash flows of the parent company are funded by long-established, regulator-approved expense, interest and tax sharing agreements with its subsidiaries and not through dividends from subsidiaries. This provides us with an enhanced level of certainty and predictability in parent company cash flows.

During the third quarter of 2021, we repurchased 7.1 million shares and year-to-date through October 31, we have purchased 13.3 million shares or approximately 7% of our outstanding shares at an average share price of $22.78 or an approximate 3% discount to our current book value. As of October 31, we have approximately $95 million of remaining repurchase authorization which expires on August 31 of next year. We have also continued to pay a dividend to common shareholders throughout the pandemic, including during the third quarter of 2021, as we returned approximately $27 million to shareholders through dividends during the quarter.

As a reminder, and as previously announced, we increased our quarterly dividend by 12% to $0.14 per share during the second quarter of this year. The combination of dividend payments and share repurchase represent a return of capital of approximately 82% of our after-tax operating income for this year. Given the capital strength at Radian Guaranty, and the financial flexibility provided by our available liquidity at Radian Group, we believe that we are well positioned to support our businesses and deliver value to our shareholders.

I will now turn the call back over to Rick.

[Rick Thornberry, Chief Executive Officer]

Thank you, Frank. Before we open the call to your questions, let me highlight for you that we increased book value per share by 9% year-over-year and maintain a strong capital position with $1 billion of total holding company liquidity. We’ve seen continued improvement in the credit performance of our portfolio that reflects a return to a more certain operating environment. We wrote $26.6 billion of high-quality new mortgage insurance business, which helped grow our primary mortgage insurance in force to $241.6 billion, Homegenius revenues increased by 51% year-over-year.

Finally, I wanted to mention how proud I am of our team’s continued dedication to our customers, our communities and each other. During the quarter, we were recognized as a champion of Board Diversity by the Forum of Executive Women and raised a total of $165,000 for the NBA Open Store Foundation, an organization that shares our mission of enabling and protecting homeownership. I know many of you are familiar with our annual fundraiser for the foundation which helps families with critically ill or injured children to remain in their homes while their children are in treatment. I wanted to take a moment to thank all who helped to make our campaign a huge success for an outstanding cause.

Now operator, we would be happy to take questions.

[Operator]

Thank you. [Operator Instructions] And our first question comes from Doug Harter from Credit Suisse. Please, go ahead.

[Doug Harter, Credit Suisse]

Thanks. I was hoping you could just talk a little bit about the competitive dynamics that happened on the MI space during the quarter. And just any particular areas where you think you were more effective at winning business this particular quarter?

[Derek Brummer, President, Radian Mortgage]

Yes. This is Derek. So in terms of the competitive dynamics, and Rick alluded to this in his opening remarks, what we kind of saw, I would say kind of the second half of the second quarter, we saw increased kind of stabilization in the competitive environment. We saw some price decreasing in the first half, but that really stabilized and that allowed us an effective opportunity. As we’ve indicated, long-term, we would expect our market share to be in kind of that pro rata range to give up market share in kind of phases where you’ve seen price volatility. So with that stability, we found better opportunities to distribute capital across the credit spectrum. We also saw some opportunities this quarter to lean into certain credit segments. So our NIW was up, our capital deployment was up even more this quarter. So we saw pretty good value, and that also plays to our strength when we have that stability. Really, what we’re looking for, as Frank referenced, is that portion of the market with the highest economic value. And so a lot of our analytics are focused on that, really moving in and out of positions based upon where we see that relative value. And I would characterize overall kind of where we see value and pricing, we see good value kind of across the spectrum and under the different pricing schemes. Most of our pickup was really in the Black Box segment and our radar rates is where we kind of picked up, I would say, the most market share this quarter

[Doug Harter, Credit Suisse]

Great. Thank you, Derek.

[Operator]

And our next question comes from Cullen Johnson from B. Riley Securities. Please, go ahead.

[Cullen Johnson, B. Riley Securities]

Hi, good morning. Thanks for taking my questions. Looking at the Homegenius segment, I think in 2020, the lowest quarter for revenue was the fourth quarter. Is there any sort of seasonality to the top line there that might make that the case again in 4Q ‘21? Or do you think there was more isolated data point there?

[Rick Thornberry, Chief Executive Officer]

Yes, Cullen, that’s a great question. This is Rick. I think we – today, we remain committed to our guidance that we provided in terms of total revenue. I think there is seasonality in the mortgage business and real estate business generally, right? So we would look at Homegenius today as being kind of in that market space today where you could see seasonality. I think different factors play than the last year than what we would see this year. And I think we’ve given guidance around both 2021 and 2022 in terms of revenue, and we continue to remain confident on that. I would say that I couldn’t be more proud of the team that’s executing our Homegenius plan and really the progress being made. And when you look at kind of from our side we’re continuing to see our customer pipelines build. But just as important, not only are we adding new clients, we’re penetrating existing clients. So we’re happy about the business that we’re doing. But we’re in the mortgage real estate cycles, if you will, and we will manage and navigate those through and feel comfortable with the guidance that we’ve provided.

[Cullen Johnson, B. Riley Securities]

Got it. That’s helpful. And then just sticking with the Homegenius segment kind of in the presentation, the SaaS contribution to revenue has been lower than the low end of the target. So I was just curious what might cause that to ramp up and get closer to that target here kind of in the intermediate term?

[Rick Thornberry, Chief Executive Officer]

Yes. I think as we went through – again, thank you for the question. As we went through at Investor Day, really our focused on kind of the growth in SaaS, it really comes starting in 2022. So anything that you see happening this year is kind of on the early side I would say is from a Homegenius perspective, our title business, as we said and kind of forecast, our title would lead to growth kind of early on here, with kind of our SaaS business following and our other real estate services, providing a very steady and valuable contribution along the way. So we’ve – in our SaaS business, we’re early in the rollout. I would say from a customer point of view, the feedback on our smart workflow system and our property intelligence platforms have been very positive and very encouraging. And so I think as we roll to in 2022, we would expect to see the contribution start to develop from the SaaS business. I think what we did is, we focused on Investor Day more about the number of users that we grow over a period of time. And so we would look to start to discuss and provide that information as we get into 2022.

[Cullen Johnson, B. Riley Securities]

Okay, great. That’s helpful. I will leave it there. Thank you.

[Rick Thornberry, Chief Executive Officer]

Yes, thanks you, Cullen.

[Operator]

And our next question comes from Mark DeVries from Barclays. Please, go ahead.

[Mark DeVries, Barclays]

Yes, thanks. I understand that the net yield is tough to model given some of the drivers there. But for the in-force portfolio premium yield, how close do you think we are from seeing that bottom just given the risk you’re writing today?

[Frank Hall, Chief Financial Officer]

Yes, Mark, this is Frank. It’s a good question and one that I think we’ve been answering for many quarters now. I think as we’ve said before, it really is a matter of the mathematics associated with bringing in new business with particular risk mix in a particular premium level, relative to what stays in the portfolio and what runs off and looking at all of those attributes there. Generally speaking, we have guided that – we expect to see that premium yield decline over time actually for several years now. In fact, our in-force portfolio yield has declined about just under 7 basis points over the previous seven quarters. So you’re seeing about a basis point per quarter coming out of there, and I would say, our decline here isn’t that much different. That’s not to suggest that that’s a run rate to bake in. But it really is difficult to predict in that regard. But I do think, directionally, we would expect to see that continue for a bit longer.

[Mark DeVries, Barclays]

Okay. Understood. And then sorry if I missed this, did you discuss kind of what caused the year-over-year increase in the MI underwriting expenses?

[Frank Hall, Chief Financial Officer]

Yes. So year-over-year, it was incentive comp expense.

[Mark DeVries, Barclays]

Okay. Got it. Would you expect that to remain elevated in the fourth quarter?

[Frank Hall, Chief Financial Officer]

No. It’s generally seasonal. As we look to true-up accruals and things like that for year-end, the magnitude of change generally in the fourth quarter is muted.

[Mark DeVries, Barclays]

Okay, got it. Thank you.

[Operator]

And our next question comes from Mihir Bhatia from Bank of America. Please, go ahead.

[Mihir Bhatia, Bank of America]

Hi, thank you for taking my questions. And let me apologize upfront for maybe beating a dead horse, but I did want to follow-up on Mark’s question about premium rates and where they stabilize? Maybe talk about your yield on NIW, how that has been trending or where that is relative to the in-force yield, or at least some puts and takes from here on the premium yield? I guess, like the part we’re struggling a little bit with is, last year, you raised rates a little bit, and then this year, you, I guess, rates are back to pre-pandemic levels, and we’re seeing premium in-force premium yields decline. And the question, I guess, is, will they be declining at a faster pace a little bit here as this year’s policies come on at a lower – NIW comes under a lower yield than even last year’s or anything you can help us more on that on just in terms of the outlook for premium rates would be great?

[Frank Hall, Chief Financial Officer]

Sure. Sure thing, Mihir. I’ll start. This is Frank. I’ll start and then maybe turn it over to Derek for some additional color on market dynamics. But what I would suggest to you again and I know it’s frustrating to try to predict this. But as we look at where value is across the risk spectrum, we want to maintain nimbleness and make sure that we are able to write the business where we see the greatest value. That doesn’t always mean that it’s the same risk dimension. And so because of that, it also means that the premium rates can vary. And so that’s what really makes this particular metric a difficult one to predict. Directionally, is probably the best that we can do for you and then keep in mind also – and Derek can touch on this a bit more the rate dynamic, that we saw before COVID, during COVID and post COVID, I would say was unusual volatility just for a very specific event there. So again, the best I can do for you directionally is just to say that the trend is likely to continue. It is a competitive pricing dynamic overall, and that’s not unusual. We have been saying that for years. But again, what we are focused on is finding value and that can create some differences in what’s actually produced on an IW basis from a risk perspective. So Derek, I don’t know if you had anything else there.

[Derek Brummer, President, Radian Mortgage]

Yes. I think you hit upon it, Frank, in terms of the risk mix is very important, right. So, what we are doing is we are deploying capital. We are looking to maximize the economic value and the return on that capital. And so with respect to that, and I alluded to this as well. We will move in and out of different credit segments. And correspondingly, the premium rates will kind of shift as we move in and out. So, you can have situations and I would argue we have kind of seen that this year where you have seen overall in the industry a premium rate decline in the first half, you have seen stabilization. I would say our premium rate has stayed relatively stable, but that’s as we have moved risk mix. Now we are not looking to maximize necessarily that premium rate. That’s an important component, but that’s kind of an output in terms of our decision, which is to focus on economic value and maximizing that. So, it’s very hard to say. The other thing you have in is just the shift between refi and purchase mix. So, have you seen that purchase volume increase, you have seen that move around as well. You also have to factor in what you think the duration is on the policy. So, as a result, – and then finally, I would say whatever we seek to do, we live in a competitive environment. So, ultimately, when we are trying to project kind of the portfolio yield, it’s dependent upon what the competitive environment looks like as well. I think that’s why it does make it difficult to give a projection. Here is where it will be in this period of time.

[Frank Hall, Chief Financial Officer]

And Mihir, this is Frank again. I would just close it out with one other observation, which I know you know is as you look at persistency and increasing persistency that’s actually going to decrease the rate of change you are likely to see in the portfolio yield overall. That lower persistency is going to cause a faster turn in the portfolio, but we are starting to see some modest upticks there in persistency. So, I think that bodes well for us.

[Mihir Bhatia, Bank of America]

Okay. No, I appreciate that. And totally, I think we appreciate that your pricing to – you are maximizing returns, not premiums. It’s just a little challenging from the outside, again, early on in the process to see that. Maybe just switching a little gears a little bit on Homegenius, it continues to be an area of investment. And obviously, you talked about it at your Homegenius Investor Day a few months ago. But maybe just talk a little bit about where the growth is coming from? Who are you competing against in those businesses, particularly on the – I guess on the title side, it’s kind of straightforward. But outside the title side, who are you competing from? Are you winning this new business from competitors? Is it just people choosing to outsource? Like, talk about some of the dynamics in some of the non-title businesses within that, please? Thank you.

[Derek Brummer, President, Radian Mortgage]

Yes, Mihir, thank you for the question. And I think, first off, I don’t want to exclude the title business because I think what’s interesting about the title business is we are a new entrant, right. And you can consider us a new entrant and leveraging our relationships on – with lenders to our MI business and other businesses, we have been able to gain relationships on the titles side with some of those key relationships. So, we are growing new relationships on the title side, and at the same time, through service and just the execution by our teams, from a service delivery perspective, we are penetrating those clients, which is very, very important kind of as we see market shifts on the mortgage side. So, I think title, as we said at Investor Day, would start – would kind of lead the growth, and it’s done that, and we feel good about our business, and we look forward to growing that. On the real estate services side, say, valuation and asset management so far, we have actually seen – we are a very strong and market-leading player across the asset management side. And even though REO has been pretty much shutdown because of the foreclosure moratorium, we see that kind of lifting going into 2022, and we have seen great strength in the SFR business. So, we are a leading player in that business. It’s small, but it’s a very nice contribution to our business. And then on the SaaS business, it is early. We are competing – the competition there is generally other technology players with, I would say, niche solutions kind of narrow solutions, and I think what we are doing is, we are bringing kind of a – people have described it as kind of a new category in terms of smart workflow systems for realtors and property intelligence platforms for realtor. So, not to say we don’t have competition because we do as we define kind of a better way of doing business for real estate agents, I think we are competing with existing and legacy players there to take market share away from them, right, so – but with new and different and better models. So, it’s early. But again, the feedback has been very positive from the customers and kind of the discussions that we have been having as we have been starting to unveil are different capabilities. And so that’s what gives us kind of gives us confidence in the future. So hopefully, that helps you. But I would say, look, we are – everything we do is in a competitive market, and we try to determine are we able to do it better than the competition, cheaper, but better value propositions. And I think in all cases today, we feel confident about the value proposition we offer across our Homegenius business to be highly competitive, kind of what’s next and an opportunity to be more of a disruptor than kind of a traditional legacy player.

[Mihir Bhatia, Bank of America]

Understood. Thank you. I will just ask one last question and then I have one what applies the call. Just on the regulatory. You mentioned the FHA offerings looking to expand. Can you just talk about some of the puts and takes from that? Have you heard any rumblings of doing away with life of loan coverage or a sliding scale in terms of adopting sliding scales for premium rates, changes to the MI program, whether or even like rate cuts, just your views on some of that? Thank you.

[Rick Thornberry, Chief Executive Officer]

Well – and Derek can add to this because his is a Chairman of U.S. MI, he also has great visibility into this. But I would say, look, we saw FHA, right, in terms of – and I think you are referring to FHA take a very considered view early this year when there was discussions about premium cuts. I think as an industry certainly as Radian, we all felt like what we heard being discussed would not have had a material impact on our business. So, I think we still feel that way. Obviously, any changes from an FHA point of view could also be – there could also be changes from the GSE perspective, too, in terms of low level pricing adjustments. So I think, today, obviously, there is the actuarial report on the strength of the fund on FHA coming out soon and we will see where that is. And I think there is still – there has been great discipline around kind of considerations about changes to FHA pricing. I think it’s a balance between public policy and maybe politics, if you will, compared with what is some business practices. So, we will have to see. Recently, I have not heard much chatter. I don’t know, Derek, if you want to add anything to that?

[Derek Brummer, President, Radian Mortgage]

No, I think you hit the key points. I think the other important thing to keep in mind is it’s just less of a significant risk for us than what it had been historically, because there is just less of a credit overlap in terms of where we are generally writing business. And I think when we looked at it in the past, I think if we thought about like a 25 basis point reduction in FHA premium, I think back when this was kind of a hot topic, I think we estimated and that was probably going to move less than 5% of the volume to GSE’s way. But as Rick alluded to, the GSEs are also looking at and the FHFA is, I think focused on things like loan level price adjustments and GPs as well. So, you can have a shift there also where that market is expanding in size. So, it’s tough to see where it all shapes out.

[Rick Thornberry, Chief Executive Officer]

I think important to think that nothing happens in isolation. And the other issue that’s just a primary consideration out there, which we talked about before, is anything you do to reduce price only further extends the issue of supply-demand, right. So, you increase demand by providing more attractive pricing and the supply side of things is extremely limited. So, you could actually cause issues with affordability just by reducing price thinking you are helping borrowers, right, because increasing demand against a finite supply, we all learn that in Economics 101. So, I think the good news was there has been very thoughtful consideration as we have gone through. And yes, we will continue to work. We are working very closely with FHFA and the GSEs. They are continuing around opportunities for us to really work together to address the low-to-moderate income affordability and access to financing in a constructive, sustainable way. And I m very optimistic that there is going to be some very positive outcomes to those efforts as we work together as an industry to really kind of once and for all trying to solve some of those issues. And I think it’s time to do it.

[Mihir Bhatia, Bank of America]

Understood. Thank you.

[Rick Thornberry, Chief Executive Officer]

Yes. Thank you.

[Operator]

[Operator Instructions] Our next question comes from Bose George from KBW. Please go ahead.

[Bose George, KBW]

Hi, good afternoon. I just wanted to go back to the discussion on expenses. The $60 million that you guys added to, when – is that just for the operating expense number and then we should add whatever, mid-single digits for the policy acquisition costs?

[Frank Hall, Chief Financial Officer]

Yes, that is for the other operating expenses. That’s correct.

[Bose George, KBW]

Okay. And then like if I look at that number, say, $65 millionish a quarter, it seems to work out to kind of close to a 30% expense ratio. I mean, like when you target your mid-teens ish ROE, what kind of expense ratio do you kind of build into that?

[Frank Hall, Chief Financial Officer]

Yes. So, we look at really just our historic and we do a periodic update on the expense assignment that we give for our return calculation. And so we look at our historical costs associated with that. There are some allocations that we put in there. So, it’s a combination of direct and some indirect costs, but it’s an estimate that we put forward in estimating that.

[Bose George, KBW]

Okay. Yes, I am just curious, I mean your – I guess, peers with similar insurance in force are kind of in the low-20s. So, do you think there is room to kind of get the expense ratio down a little lower?

[Frank Hall, Chief Financial Officer]

Yes. I mean we are always – and Bose, I think you followed this long enough to know this, we are always looking for ways to be more efficient to leverage technology, to create positive operating leverage in the business I would say it is to the point where we wouldn’t want to suggest that there are big gaps that we are managing to, but more just do refinements that we will see over time.

[Bose George, KBW]

Okay, great. Thanks a lot.

[Operator]

And our next question comes from Ryan Gilbert from BTIG. Please go ahead.

[Ryan Gilbert, BTIG]

Hi. Thanks. Good morning guys. First question is on insurance in force, really nice to see the sequential pickup in the third quarter. And then just thinking through your prepared remarks around persistency and the total market in 2022 being smaller than ‘21, do you believe or do you think that you can continue to grow insurance in force, or do we think that the improvement in persistency that we expect is it going to be enough to offset decline in NIW?

[Frank Hall, Chief Financial Officer]

Yes. This is Frank. And I appreciate the question. I think that one is, especially given the size of our in-force portfolio, which is among the largest in the industry, and our market share expectations. I think the factors that would influence growth are things like just the size and the overall market, etcetera, relative to higher persistencies. So, I wouldn’t want to suggest that there would be significant growth there. But I think the growth factors are certainly possible in the coming years, just given some of the variables that you mentioned. But it is similar to our portfolio yield, it’s a bit challenging to predict just given what the landscape for refinance activity might be like and what the NIW might be like. But I would certainly suggest that some modest growth could be there.

[Rick Thornberry, Chief Executive Officer]

Yes. And I might add to Frank’s comments, too, Ryan, I mean, when you look at the macro factors, as I shared in my prepared remarks, when you think about the refinance market projected to decline by 55% next year, that has a – assuming that plays out, that should have a positive impact on persistency. And we also would talk about in the context of the purchase market continues to have strong tailwinds. So, we see growth in the purchase market where MI is likely to participate. So, we do still see one of the larger markets, albeit maybe smaller than 2021 and 2020 for the MI business. So, when you look at the common – the macro factors that are kind of all potentially pointed in the right direction to kind of increase persistency and also continue to see strong mortgage insurance participation across the purchase mortgage markets. But again, in terms of forward forecasts, we look at more of the macro trends and participate and go full force at it. And I would agree with Frank’s comments that it’s sometimes hard to predict because of timing of some of these factors.

[Ryan Gilbert, BTIG]

Okay, got it. Really helpful. My second question is on Homegenius. I am wondering if Zillow’s exit from the iBuyer business has changed your view on Homegenius’ total addressable market?

[Rick Thornberry, Chief Executive Officer]

Thank you. No, not at all. And I don’t want to comment on Zillow. I read the stories and they – I give them credit for trying something bold. But why they made the decision to get in and get out, I will leave that to them. But for us, our focus and conviction on the Homegenius in the size and scale, in the addressable market of Homegenius across mortgage and real estate markets remains very large and no part of it really related to – so we actually do business with iBuyers and SFR investors. And I think much of the iBuyer focus was kind of addressing some of the SFR investors’ needs. But I think their exit doesn’t really impact our business. And for us, we continue to see the same opportunities we have seen for the last year or 2 years around the space and why we are so focused on it.

[Ryan Gilbert, BTIG]

Okay, great. Thanks very much. I appreciate it.

[Rick Thornberry, Chief Executive Officer]

Thank you.

[Operator]

We have no further questions at this time. I will now turn it over to CEO, Rick Thornberry.

[Rick Thornberry, Chief Executive Officer]

Thank you. And thank you, everybody, for participating on our call today, and we appreciate your questions. And hopefully, we will have an opportunity to talk to many of you in the coming days and weeks. But as always, stay safe, be safe. I hope the holiday season goes well for everybody over the coming months. And we look forward to seeing you in person at some point. Again, thank you for your participation today. And also thank you to our team who is doing a fantastic job, and I couldn’t be more proud across our mortgage and Homegenius businesses, how the dedication and commitment that they demonstrate every day really helps us drive this business forward. So, thank you. Have a great day.

[Operator]

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