Jan 26, 2010
Executives
Mike Zimmerman – SVP, IR Curt Culver – Chairman and CEO Mike Lauer – EVP and CFO Larry Pierzchalski – EVP, Risk Management
Analysts
Donna Halverstadt – Goldman Sachs Mike Grasher – Piper Jaffray Steve Stelmach – Friedman, Billings, Ramsey Alex Pivlong [ph] Sean Faro [ph] Matthew Howlett – Macquarie Research Equities Mike Grondahl – Northland Securities Nath Otis – Keefe, Bruyette & Woods Mahmoud Reza [ph] Sam Martini [ph] Chris Owens [ph] Jacob Miller [ph] Jordan Hammett [ph] Beth Malone [ph] Bryan Hyre [ph]
Operator
Good day, ladies and gentlemen, and welcome to the fourth quarter earnings call. At this time, all participants are in a listen-only mode.
Later, we will conduct the question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host today, Mike Zimmerman, Senior Vice President, Investor Relations. Please begin.
Mike Zimmerman
Thank you. Good morning, and thank you for joining us this morning and for your interest in MGIC Investment Corporation.
Joining me on the call today for to discuss the results for the fourth quarter of 2009, our Chairman and CEO, Curt Culver; Executive Vice President and CFO, Mike Lauer; and, Executive Vice President – Risk Management, Larry Pierzchalski. I want to remind all participants that our earnings release of this morning, which can be accessed on MGIC’s Web site, which is located at mtg.mgic.com under Investor Information, includes additional information about the company’s quarterly results that we will refer to during the call, and includes certain non-GAAP financial measures.
As we have indicated in this morning’s press release, we have posted on our Web site supplemental information containing characteristics of our primary risk-in-force and new insurance risks as well as other information we think you will find valuable. During the course of this call, we may make comments about our expectations of the future.
Actual results could differ materially from those contained in these forward-looking statements. Additional information about those factors that could cause actual results to differ materially from those discussed in the call are contained in the quarterly earnings release.
The company may state forward-looking statements, but are not undertaking obligations to update those statements in the future in light of subsequent developments. Further, no interested party should rely on the fact that such guidance or forward-looking statements are current at any time other than the time of this call or the issuance of the press release.
And with that, I'd like turn over the call to Curt.
Curt Culver
Thanks, Mike, and good morning. In the fourth quarter, we reported net losses of $280.1 million with a diluted loss per share of $2.25.
New insurance written in the quarter totaled $3 billion. Market share totaled 26.3% during November as December numbers are not yet available.
Persistency was down slightly in the quarter to 84.7% from 85.2% last quarter. And with the lower volumes of new insurance written and the slight drop in persistency, insurance in force fell to $212 billion from $217 billion last quarter and $227 billion a year ago.
The average premium yield was 57 basis points, compared to 53.7 basis points last quarter. Underwriting expenses totaled $56.2 million in the quarter versus $59 million last quarter and $63.7 million a year ago.
Cash and investments at year-end totaled $8.4 billion. Paid claims in the quarter were $515 million, compared to $417 million last quarter and $310 million a year ago.
The average claim paid was $52,600, down slightly from $53,000 in the third quarter. For the year, we paid $1.7 billion, compared to $1.4 billion in 2008.
In the fourth quarter, losses incurred were $881 million, compared to $971 million last quarter, with the loss reserve now totaling $6.7 billion. The delinquency notice inventory totaled $250,448 year-end, up from $235,610 last quarter and $182,188 a year ago.
Total primary and full loss mitigation savings for the quarter was $506 million, of which $366 million were in rescission/denials, down slightly from the third quarter total of $530 million, of which $390 million were in rescissions or denials. Total loss mitigation savings for 2009 was $1.7 billion, compared to $621 million in 2008.
The breakdown on the $1.7 billion mitigated this year was $1.2 billion in rescission or denials, $400 million in loan modifications, and $100 million in pre-sales. Loan modifications, including HAMP modifications totaled $120 million in the fourth quarter, compared to $105 million in the third.
The increase in modifications in the fourth quarter was due to a significant increase in HAMP modifications, which totaled $63 million versus $30 million last quarter. Regarding HAMP, we have approximately 35,000 loans that have started the HAMP trial periods since April, of which 25,000 have cured.
To date, we a have 25% cure rate than trial loans from April, May, and June. Ten percent of those loans have re-defaulted.
Approximately 30,000 of the 35,000 loans in the trial period are in our delinquency inventory at year-end. So if this program gains more traction, it will have a positive impact on our financials.
Looking at next year, we are tracking origination market to be down approximating $1.5 trillion versus $1.9 trillion this – in 2009, and our market share to be down somewhat reflecting a new entrant in our business as well as a loss of business from customers who have gone out of business or where we have differences of opinion relative to business matters. In addition to the underwriting and pricing changes, FHA recently announced we do expect FHA to make more changes as the year progresses so the MI penetration of the general market could increase.
The net result of our expectations is that NAW, new insurance written, should be flat with 2009. And if FHA makes more changes, our volumes should be higher.
Claims pay should continue to increase each quarter from the fourth quarter levels. We expect the real estate markets to stabilize in 2010.
And as a result, our delinquency should moderate and there should be an inventory reduction at year-end 2010. Reflecting the significant fraud in the 2006 and 2007 books of business, our rescission activity will again be strong.
The wild card will be loan modifications, which could provide a significant benefit. I also want to comment briefly on the lawsuit filed by Countrywide.
Because this matter is in litigation, what I’ll say will be limited. And during the Q&A, we will not take any questions beyond what I say.
We removed this case to Federal Court in Northern California from the San Francisco State Court in which it was filed. During 2008 and 2009, there were about 100 million rescissions – rescissions involving loans insured by Countrywide through our flow channel.
The rescission practices disputed by Countrywide are no different than our general rescission practices and we have not changed our general rescission practices in response to the lawsuit. Finally, concluding remarks, as those of you that have followed us over the past two-and-a-half years are aware our company and our industry continue to deal with a very difficult housing market and a fragile overall economic environment.
Since we cannot predict or control the future relative to jobs, housing policy, or foreclosure avoidance programs, we are focusing on those items we can properly control, namely, expenses, underwriting criteria, and loss mitigation. In early 2008, we materially altered our underwriting guidelines with the goal of improving the credit profile of new insurance written, and you’ll see evidence of that in page 15 of the supplement.
We also have material increase in resources assigned to loss mitigation, which reflects the numbers I talked about earlier, and continue to run the company as efficiently as possible. Overall, we believe that there’s a role for private capital provides credit protection to the residential housing markets.
And given the significant business issues at FHA, we believe this view is shared by a number of policy makers. As a result, despite the uncertain environment, we continue to believe that the strategy of internally capitalizing MIC best positions our company for future opportunities by allowing us to write uninterrupted new business going forward.
With that, operator, we’ll take questions.
Operator
Thank you. (Operator instructions) Our first question comes from Donna Halverstadt with Gold.
Please go ahead.
Donna Halverstadt – Goldman Sachs
Good morning, gentlemen.
Curt Culver
Good morning, Donna.
Donna Halverstadt – Goldman Sachs
I have a question with respect to the pending decision from Freddie on MIC. Were they just waiting to see your end results or is there something else beyond your end results that they’re waiting on before communicating a decision?
And assuming you get their approval, how long does it then take to get, end, or update licenses in the jurisdictions where you’ll need to do so?
Curt Culver
I would say from what we are aware, Freddie Mac has been discussing this as recently as this week. I think the discussions have been positive relative to our company.
I think other companies have proposed similar structures. And so I’m – we're expecting soon to hear from Freddie Mac.
Regarding the implementation, I think we are shooting for April 1 relative to MIC being operational, Donna. So relative to the effect that states, we think we’ll be operational April 1.
Donna Halverstadt – Goldman Sachs
Okay.
Curt Culver
Assuming everything goes at Freddie Mac that we expect.
Donna Halverstadt – Goldman Sachs
Okay. Another thing I wanted to ask about was the tax benefit, the $257 million that’s mainly related to the extension of the annual carry back.
At the end of the third quarter, you had estimated $178 million. What drove the swing from $178 million to $257 million?
Does that just mean your fourth quarter loss was greater than you’d previously estimated?
Curt Culver
Yes.
Donna Halverstadt – Goldman Sachs
Okay. And the other thing I wanted to ask about, in your third quarter 10Q you talked about how receipt of any taxes are coverable, could be delayed, or subject to final settlement of open tax matters.
How much of that $257 million do you expect to get in cash? And what’s the time frame for finalizing other tax matters that may delay the receipt of such?
Curt Culver
The timing would be subject to the finalization of those tax issues. Generally speaking, IRS reviews take a long time.
So it’s been a number of years, maybe longer.
Donna Halverstadt – Goldman Sachs
So you don’t expect to get any tax until those other matters are settled?
Curt Culver
That’s correct.
Donna Halverstadt – Goldman Sachs
Okay. And then one other thing I wanted to ask about, you commented that on December 1st, the GSC has changed the way they use the MTV test for HAMP?
And then you said that that could materially decrease the number of loans that would participate in HAMP. What exactly was the change and what’s your thought process there?
Mike Zimmerman
Donna, this is Mike Zimmerman. What Freddie and Fannie did was they implemented a threshold.
So for GSC loans prior to December 1st, they had no – they're running the MTV test from treasury, but there was no limit as to whether or not they would offer modification. They’ve instituted a $5,000 negative MTV.
So if it’s greater than 5,000 negative, without their prior approval, they can’t use the HAMP program, but they can use all their other programs.
Donna Halverstadt – Goldman Sachs
Okay. All right.
And actually, I have one other question I wanted to ask. In terms of the charter (inaudible) program, Mike, you commented about how if the lender switched to the charter coverage from the standard that obviously impacts revenues.
But then you also commented that you could experience other adverse effects. What are the other adverse effects beyond reduced revenues and related implications?
Curt Culver
I don’t know what the other was when we commented.
Donna Halverstadt
Okay. I picked that up in your risk factors.
Mike Zimmerman
The charter level coverage, aside from reducing in general, if you look at the execution, the loans most likely to utilize charter would be the higher FICOs, and the lower FICOs, which still have the tendency to use standards. So aside from the overall drop in revenues and what not, you get an adverse selection within the portfolio.
Donna Halverstadt
Okay. Great.
Thank you very much.
Curt Culver
Yes. Thanks, Donna.
Operator
Our next question comes from Mike Grasher.
Mike Grasher – Piper Jaffray
Good morning, everyone.
Curt Culver
Hi, Mike.
Mike Grasher – Piper Jaffray
Question around the change in delinquencies, just in terms of if there’s any encouraging signs within the pool of delinquencies. It seems like the change actually slowed sequentially.
Mike Zimmerman
Well, the two things that drive the inventory are the new notices going in and the secure rate relative to the loans in delinquency status. On the Q-rate, the Q-rate remains rather low, flat from levels earlier this year.
So we’re not seeing improvement on the Q-rate at this point. We’re seeing declines in the number of new notices.
Most of that is in the newer books of business, the '07 books of business, and mostly in the weaker markets in the higher-risk product segment. So California and Florida are dropping.
If you notice, the activity's dropping as well as all day in A-minus. I think it’s driven largely by, I call it, burnout.
The new notice activity reached such high levels. And now with the population decline, certainly the current population decline, there're just not enough current loans remaining to fuel those high levels of new notices.
So we’re seeing declines in new notice activities form those most distressed geographies and product segments.
Curt Culver
Let me just add that the increase in delinquencies in the quarter was about 15,000. In Florida, it was up only 1,400, in California is only up 600, so that's kind of the indicator.
If you recall, those two states were kicking off significant changes in delinquencies and it slowed where we indicated in those two markets principally.
Mike Grasher – Piper Jaffray
Absolutely. And then, Larry, you mentioned the ’07 books slowing about ‘05, ’06?
Larry Pierzchalski
The ’07 has shown good rate of decline. The older books of business are showing rather flat to slight decline.
And that’s really the issue. Typically, you’d see a steady rate of decline and because of the economy and home prices, the decline and new notice activity in the older books is kind of stubborn.
Mike Grasher – Piper Jaffray
Okay. The older books then being simply the economy from this point, the bad stuff, the fraud maybe is extinguished or burned out of those, is that fair to say?
Larry Pierzchalski
Well, I’d say true.
Mike Grasher – Piper Jaffray
Okay. And then the – what can we read in – the paid claims were up and we expect them to go higher.
But the average paid claims seem to be in decline. What can we read from that?
Is it just more settlements or units there or is there something else?
Larry Pierzchalski
Well, I think – and overall, it’s down because of the mix between bulk and flow. But if you look at flow, it’s up sequentially every quarter.
So the flow book continues to increase, and the severity increases. It's a combination again at getting to paid.
It’s a combination of those higher states, of Florida, California, et cetera, and higher exposure. So overall, the reason for the mitigation was the combination of bulk and flow, which bulk has been flattening out, but the increase on an individual basis is coming sequentially off of the flow book each quarter.
Mike Grasher – Piper Jaffray
Okay, so it’s the mix. Right.
Thank you very much.
Operator
Our next question comes from Steve Stelmach.
Steve Stelmach – Friedman, Billings, Ramsey
Hi, good morning.
Curt Culver
Good morning.
Steve Stelmach – Friedman, Billings, Ramsey
Just a little quick follow-up on the last line of question, and two others. On the delinquency notices, there’s nothing in that number, the new delinquency notices, that is impacted either by servicer delays or mod programs.
That’s a pretty clean number quarter-to-quarter, is that correct?
Curt Culver
As far as we know, yes.
Steve Stelmach – Friedman, Billings, Ramsey
Yes. Okay.
And then on the rescission, Curt, you mentioned the fact that you suspect rescissions to remain strong through 2010. How should I compare that to rescission rates or essential dollar amounts?
Is it the rate of rescission may be declining, but the actual dollar amounts could stay roughly robust because of the shift from bulk to flow?
Curt Culver
Well relative to the rate, I think it might be slightly higher, and I think the dollar amount will be slightly higher or flat to higher. I mean we get a peak end of that just by looking at the fine (inaudible) ladders that we send out in advance, so the terminations with the lenders would – so it gives you, maybe a three months window on – were rescission activity is going.
And I think in both cases that will be slightly higher than it has been currently.
Steve Stelmach – Friedman, Billings, Ramsey
Great. Okay.
Curt Culver
If I could go back to that question about the delinquency reporting, the only issue that we're aware of is the small one is with Taylor, Bean & Whitaker. They were taken over.
And as result, some of the servicing ships, there’s been a disruption in the normal month-in month-out delinquency reporting. So we’ve addressed that through IBNR.
And hopefully in the next month or two, that’s settled out.
Steve Stelmach – Friedman, Billings, Ramsey
But the IBNR, that doesn’t open the delinquency counter?
Curt Culver
No, no. So the loss associated with those delinquencies has been covered with the IBNR.
But the count as a result as with the servicing might show up with – our estimate's maybe a thousand or two increase here whenever they get that sorted out here in the first quarter.
Steve Stelmach – Friedman, Billings, Ramsey
Okay. So not a huge number, but perhaps–
Curt Culver
No. And we’re reserved for it as–
Steve Stelmach – Friedman, Billings, Ramsey
Yes. And then just a last question, you mentioned that you lost a little bit of business to differences in business matters.
Is that differences in underwriting opinion or is that pushed back to the rescission issue?
Curt Culver
All of the above, but more the rescissions.
Steve Stelmach – Friedman, Billings, Ramsey
Okay, okay. Thanks.
That's all I have.
Operator
Our next question comes from Alex Pivlong .
Alex Pivlong
Hey, guys. This question is (inaudible) static pool analysis, appreciate it.
Curt Culver
But thanks for your input in getting it there, Alex. Is that it?
Mike Zimmerman
Operator?
Operator
Our next question comes from Sean Faro [ph].
Sean Faro
Thanks, guys. You’ve answered a lot of the questions already.
I have a question. It seems like you guys obviously plugged a little bit of a hole buying back a few more 11s this quarter from last quarter.
I just wanted to get an updated thought on how you guys expect to close that hole, if you guys are still confident in the regulator, allowing the dividend up as necessary if it gets changed to the external capital to plug that hole.
Curt Culver
Again. We’re talking about the October 2011 that remains at about $78 million and we currently have $84 million at the holding company.
But not withstanding interest statements between today and that date, we would need to get additional funds. And we believe we’d be able to get some type of funds available to cover the remaining balance of that debt between now and that date to avoid any default issues.
Sean Faro
Okay. And then one other quick question, you guys mentioned an inventory reduction by year-end 2010.
I assume you’re talking about delinquency inventory reduction?
Curt Culver
Yes, yes.
Sean Faro
And that’s obviously following through from what? You were talking about earlier on the ’07 book starting that sale off and hopefully the earlier books, the economy is starting to come back and getting the benefit from that.
Is that why you are expecting that one?
Curt Culver
And the bulk.
Mike Zimmerman
Yes.
Sean Faro
Okay, got you. And then, the price increase from the FHA, obviously, clearly you guys were, if I can say, way off on new insurance written this year.
At the beginning of this year versus where you guys ended up, clearly there was a lot of changes and everything else. Do you think that – this price increase from that FHA, you said you expected to stay flat in 2009 and 2010, quite a lot can be driven by MIC and the timing on that, I would assume.
Are you guys pretty confident that you guys can keep it flat? Because I guess we were expecting even a large sequential decline, even in year-end 2008 in the fourth quarter that we’d see maybe a little bit better performance this year on new insurance.
Curt Culver
I’m not sure what the question is.
Sean Faro
Well, I guess the question is do you feel confident that you’re going to be flat through 2009. And that’s just driven by – if FHA hadn’t changed their pricing, do you think that you guys would have been flat or–?
Curt Culver
I would tell you, the FHA change that they made doesn’t impact our volume. The change that they had – if it does, it’s only minimally.
We’re expecting that they may make other changes as the year progresses given the situation at FHA. But the 50 basis point increase and the prominent premium I think has a $5 impact on the borrower’s payment.
So that doesn’t make much of a difference. We’re just expecting relative to the changes and other things that we can do here that we – throughout the year, we’ll be flat year-over-year.
And if FHA makes more changes, which I think they need to, to reflect the decrease in their surplus, that would even be better – obviously better for our industry, and MGIC in particular.
Sean Faro
Okay. Do you guys think you’ll be flat even with the current changes?
Okay.
Curt Culver
Yes, yes.
Sean Faro
Okay. Yes, that’s it.
Thanks, guys.
Operator
Our next question comes from Matthew Howlett.
Matthew Howlett – Macquarie Research Equities
Great. Thanks for taking my question.
Just a clarification on the forecast for year-ending delinquencies going down, is that from the third quarter 2010 or is that year-over-year?
Curt Culver
Year-over-year.
Matthew Howlett – Macquarie Research Equities
Okay. Great.
And, Curt, on that note, you gave guidance at this time last year. You said that you will not be profitable for all of 2009.
What made you refrain from giving profitability guidance this time around?
Curt Culver
I don’t remember doing that last year, and we've just gotten away from talking about earnings. So I don’t remember doing it last year, but we certainly didn’t do it throughout the year and I’m not doing it now.
Matthew Howlett – Macquarie Research Equities
Okay. Fair enough.
And then just moving back to the HAMP, you said 12% of the delinquencies are in trial. Do you have that percentage on just the flow, delinquencies are in trial?
Curt Culver
What’s that again?
Mike Zimmerman
Do we have the (inaudible) in trial, the 35,000 loan.
Curt Culver
No.
Matthew Howlett – Macquarie Research Equities
Just on the flow per ratio. I assume it’s a lot higher given most of it's GSC.
Curt Culver
Yes. A majority, about 70% net of our insurance in force, and roughly a certain percentage of our delinquent inventory at GCS loans, so we don’t have a break between the two.
Matthew Howlett – Macquarie Research Equities
And then the last question, you said if you can’t get up to six months at a time, a borrower started a trial to realize (inaudible). On the buyouts coming out of the GSC side, why wouldn’t you feed on the exact, the same month in which the buyout occurred?
Mike Zimmerman
Matt, it’s Mike Zimmerman. And there are a lot of reasons for that.
One, first and foremost, is the recording from the servicers where we get delayed basis to us, as you know. Also, just because they're via (inaudible) pool, it doesn’t mean that their mods are – beginning the modification, that becomes permanent.
So they could buy an (inaudible), say in the month of December, will not report to us until January or February.
Matthew Howlett – Macquarie Research Equities
Got you. Okay, so it just could be a couple of months to have solid.
Mike Zimmerman
We notice that the reporting is not the most robust at this point in time on half long.
Matthew Howlett – Macquarie Research Equities
Great. Okay, great.
Thanks, guys.
Curt Culver
Thank you.
Operator
Our next question comes from Mike Grondahl.
Mike Grondahl – Northland Securities
Yes. Two questions, guys.
One, can you just kind of handicap the HAMP program? Is it progressing as you expected?
It seems a little slow, but it’s picked up seeing in the last month or two. Could you kind of handicap that for us?
And then secondly, when you’re doing a fraud rescission, I know you have to wait until you get a claim notice. Is there any way to expedite that?
And were you able to do a rescission earlier in the process to save all that investigative work?
Mike Lauer
Right. This, is Mike Lauer.
Let me take the first one, our handicap and HAMP activities. As you noticed, the Treasury has put out a big push.
There’s more conversions taking place. Clearly, it’s not what the administration thought was going to happen, or 3 million or 4 million loans being saved.
But I'll remind everybody that the monumental offered by servicers to refigure their system, hire people, train, the documentation required, et cetera. So we’re seeing progress made.
We’re also reading, I think as everybody else said, this report from Treasury that they’re looking at modifying it. They're trying to streamline some of that documentation that may accelerate the amount of permanent modifications that occur.
But it’s all wait and see. So yes, I think the modifications outside of our company were much higher, I think, from the administration and the public domain were much higher than what I think the mortgage industry and mortgage insurance industry would have expected.
Mike Grondahl – Northland Securities
Got you. Mike, let me just follow up to that quick.
The 2,400 or the 2,500 that you guys said actually cured or went to permanent status, what benefit did you derive from that? Are we to assume that your average reserve per delinquency of 26,000, 27,000, that was released, or what happened with the 2,400?
Mike Lauer
Yes. This is Mike Lauer again.
Yes. That particular case, those delinquencies would have cured and they would have come out of the reserves, so that’s a direct benefit to incurred losses for the month.
Mike Grondahl – Northland Securities
Great. Okay.
That’s what I thought, but I just wanted to be sure. And then, the question about fraud rescission and waiting for a claim notice?
Curt Culver
Yes. I mean, the – actually we’re doing a pilot on that right now, Mike.
But the thing that we’re finding is that – we have baked in to our numbers what we think the ultimate rescission rates are. So it’s not going to have a–
Mike Lauer
And it's not the ultimate because of the current.
Curt Culver
–at the current rescission rate. And so it doesn’t have a significant benefit there by doing them earlier.
But we, as looking at it, we don’t save any dollars relative to investigations. In fact, we incurred more because we have the higher and more people or outsource it, which some of our competitors have done.
So you actually incur a lot more costs in doing it earlier. So we’re looking at the financial benefit of doing it.
The only thing you do gain, and we don’t know how much of this is, by going earlier do you get better information from the borrower that might be lost if you waited until the claim. So, we’re going through that work right now and just do the financial benefit of doing it earlier.
Mike Grondahl – Northland Securities
Okay. Great.
Thank you.
Curt Culver
Yes.
Operator
Our next question comes from Nath Otis.
Nath Otis – Keefe, Bruyette & Woods
Good morning, gentlemen.
Curt Culver
Good morning.
Nath Otis – Keefe, Bruyette & Woods
Most questions' been answered. Just one quick follow-up on – with Bank of America.
I know you can't comment on the lawsuit. But just any thoughts or commentary on any possible impact to other lenders who could possibly come out and do something similar to what Bank of America has done.
Is that a concern? Is that something you’re watching, you don't have any concerns about it?
Just a little commentary there if possible.
Curt Culver
We really are – as I said, we weren’t going to comment any further on that situation. So let’s leave it at that.
Nath Otis – Keefe, Bruyette & Woods
All right. Fair enough.
I guess then – only other questions has to do from attack standpoint going forward, should we just expect that taxes go back to really no impact on the income statement?
Curt Culver
That’s correct for 2010.
Nath Otis – Keefe, Bruyette & Woods
Okay. Fair enough.
Thank you.
Curt Culver
Yes.
Operator
Our next question comes from Mahmoud Reza [ph].
Mahmoud Reza
Good morning.
Curt Culver
Good morning.
Mahmoud Reza
So I had two – well actually three little questions. The first one is, you said that 70% of your loans are GSC loans.
And does that number change given the–?
Curt Culver
Yes, that's in the HAMP.
Mike Lauer
No.
Curt Culver
General.
Mike Lauer
That's correct.
Mahmoud Reza
Right, and given the change in their MTV test, does that actually reduce that percentage to what’s eligible per HAMP or no?
Mike Zimmerman
We’re not saying that's what's eligible. What we're saying is that of our 250,000 (inaudible) roll-ons, roughly 70% of those are GSC loans.
The eligibility criteria that Treasury published is so broad that we don't really think it’s a good measure. I mean, you’re just looking at all their occupancy, some things that's origination, but not current income or any other factor.
So 70% doesn't apply to qualification for HAMP.
Mahmoud Reza
Got it.
Mike Zimmerman
It is too early to tell – and those – that change is in place as this is very early. (inaudible) reporting.
We don't have a good handle on that.
Mahmoud Reza
And other housekeeping item on just rescissions, given that we wait for the actual notice of foreclosure to do the investigation. The premiums, when you pay them back, when you actually do a rescission, presumably you'll still get to keep the investment income earned, right?
Curt Culver
Yes.
Mahmoud Reza
Okay. And final question is, you guys gave us the, I guess, the role for the delinquency pool, which is very helpful, so thank you for that.
Any chance on getting a view on how it’s been trending in the first month of the year?
Curt Culver
No, no. We were (inaudible) anything.
Mike Zimmerman
It’s against those – we just started getting that information late in the month form servicers, so that’s all being processed.
Mahmoud Reza
Okay. (inaudible) by now.
Okay. All right.
Thank you.
Curt Culver
Thank you.
Operator
Our next question comes from Sam Martini [ph].
Sam Martini
Hi, guys, good morning.
Curt Culver
Good morning.
Sam Martini
I just have a quick question for you and I apologize if these numbers aren’t perfect, but I’ve written down somewhere, which certainly shouldn’t be confused of it being accurate. But I'd written down that Arizona, Nevada, and California loans are about 30%, 50%, to 100%, on average of your average loan size.
Is that directionally right?
Mike Lauer
It depends, I'd say it was about 30% to 50% higher than our average.
Sam Martini
Thirty percent, 50%, and 100%, for Arizona, Nevada, and California, on average, the average loan size in those states versus the average loan size of your insurance in force.
Mike Lauer
I think round or I think – and remembering from memory (inaudible). This is Mike.
I think our California was around within the mid 200%. So that sounds directionally right.
Sam Martini
Okay, fine. So rather than get into specifics, you said California new notices are falling.
You got a flat reserve of about $26,000 per notice of default, per net notice of default, not the net new, but the total defaulted inventory. The change is about $26,000 for about the last six, seven quarters.
And California, if we say California is at $250,000 to $290,000 loan, and those are coming off and slowing meaningfully as part of this net new default line item that you gave us, clearly your peers are averaging $15,000 to $21,000, $22,000. The defaults are meaningfully lower.
I don't have to tell you what 1,000 times $250,000 is. What is making you keep your reserves so high relative to everyone else, especially when the stake that’s producing the highest loans with probably that were the highest dollar-sized loans with extraordinary, from what we can understand, fraud frequency and a propensity to default?
What’s keeping that notice of that reserve for a new default constant? And what would cause you to lower it?
Mike Lauer
All right. This is Mike Lauer.
First of all, I can't comment on the others and what their averages are. But let’s just talk through some of the changes.
First of all, I didn’t say, “I don’t think that California was going down.” I said it went up less than it had been going up.
So, for California delinquencies, year-to-year were up 4,700 only, up 600 for the quarter, 578 as a matter of fact.
Sam Martini
But I was just pointing out that as a contributor to this net new notice, this new line item that you gave us, that the contribution is falling meaningfully.
Mike Lauer
Right. Okay, let me continue though.
So we do have a significant increase in delinquencies, you recall, year-to-year. In conjunction with that, as we outline and gave you some additional information, you can see that the cures have been trending down.
So we have a number of factors. First of all, a significant increase in overall delinquency is going up.
We have a decrease in, if you will, a cure rate throughout the year. That generates a higher claim rate mitigated by increase, if you will, in rescission factors.
So looking at our reserves, that’s how I go through the analysis and look at where we arrive at relative to our reserve on a case by case basis. I can't really comment on the differences between – between us and others.
Sam Martini
So Mike, just using your numbers, you said the new delinquencies in the quarter about $61,000. I would have to assume that the percentage of that $61,000 new notices that are California are lower today than they were a year ago when it was $76,000, which to me if that loan is two times the average size would say that there should be some incremental consideration of what’s a reasonable reserve to put aside for this total new bucket.
Is that just, am I–?
Mike Lauer
Well California was up, as I said, $5,000 year-to-year, and Florida was up $10,000. So those are still mitigating – actual numbers.
Year-to-year, Florida delinquency is up almost $10,000 and California $5,000. So that’s a negative, if you will, year-to-year as is an accelerating claim rate on flow again mitigated by increased rescissions.
So that gets you to where it would be flat. In other words, had it not been for rescissions, the increase in delinquencies, the higher exposure, and increased claim rates, the reserves would have been higher.
That's another way to think about it.
Sam Martini
You gave us the change Mike. What’s the base of California’s loans?
What’s the percentage contribution to this quarter? How many of these quarters were California versus how many of the year ago's quarters for California, percentage wise?
Mike Lauer
Someone got to catch that. I don't have it in front of me.
I just know that – what was the change a year ago? I don't know.
Sam Martini
Mike, maybe you and I can follow up on it offline?
Mike Lauer
Yes, all right. Let’s do that.
You and I might – can go through the numbers and talk through. Because we do have that information in the – in the queues, so it’s not anything that we haven't already disclosed.
But I don't have it readily available today.
Sam Martini
Okay. Thank you, guys.
Mike Lauer
Thanks, Sam.
Operator
Our next question comes from Chris Owens [ph].
Chris Owens
Hi guys, good morning.
Mike Lauer
Hi.
Chris Owens
I just wanted to follow up on a comment you made earlier in the introduction of the conference call. You said that 35,000 HAMP modifications were either in or had been in modification form.
And that it seems like as of your most recent filing, 29,700 are still being – under the modification process. So basically, it seems like 5,300 have either – has been cured or re-defaulted, and you said 2,400 have cured.
That would imply that 45% are curing, 55% are re-defaulting. Is that an accurate sense of how you see that progressing?
Mike Lauer
(inaudible) 5,000 that are no longer – of the 5,000, not all of those were necessarily delinquent, right? Because the (inaudible) default in 30-day delinquents as well.
Chris Owens
Okay.
Mike Lauer
That’s part of that difference. It’s not all of it, but that’s certainly part of it.
Chris Owens
Can you just go over that again? So if you had 35,000 at one point in HAMP, and then you have 29,700 in HAMP today, what cured, what re-defaulted, and can you explain to me what you're seeing the percentages between cures and re-defaults?
Mike Lauer
So, you got 35,000 trial cases to start. Thirty thousand are roughly still there.
So the 5,000, 2,500 or half that 5,000 cured, and you got about 2,500 that fell off or back in because it re-defaulted. But that re-default is probably back in the 30,000 numbers.
So roughly, you got 2,500 that cured, and then you got 2,500 that terminates the program for whatever reason because either they missed the payment or didn't follow through on docs, although I think they gave them extra time on that. So 35,000 goes in, 30,000 still sitting there, 2,500 cured, 2,500 fell off for various reasons.
Curt Culver
Whatever reason, yes.
Chris Owens
So it's about 50-50?
Mike Lauer
Yes.
Chris Owens
Would that as fair way to look at it?
Mike Lauer
Yes. But once again, this thing has been ramping up, so you got to really associate the cures to the time period of when the trial started.
And that goes back to Curt’s earlier comment, we’re catching those cures to the time periods, the April, May, June. And so, we have roughly, I think 10,000 loans in those three months, 2,500 or 25% have cured.
So you got to put the cures back to the timeline where the trial started.
Chris Owens
Sure. That leads me to my next question.
You had said that you expect the delinquent inventory to start declining at around year-end 2010. I think as of last quarter, you had 14,500 trial mods .
So just running this through and keeping in mind that the queue wanted seasonally beneficial, you just cure 50% of those mods that you had in Q3 giving them six months. And you have a seasonally beneficial quarter in Q1.
How is that delinquent pool not going to start going down before the year-end 2010.
Curt Culver
What we said is the delinquency inventory would be lower at year-end that it is now.
Mike Lauer
Not beginning to–
Curt Culver
We didn’t say when. You’d see that.
We said year-end – a year from now, it will be lower than it is today.
Chris Owens
Okay.
Mike Lauer
And also, I would just caution everybody to extrapolate the numbers from these very tiers of modifications from April, May, and June to the cure activity, the pretty sample size. So I think it’s fairly risky to be extrapolating that into the future.
I think more time needs to take place and more data be reported out from both Treasury and then from servicer’s (inaudible).
Chris Owens
Thank you very much.
Mike Lauer
Yes.
Operator
Our next question comes from Jacob Miller [ph].
Jacob Miller
Good morning.
Mike Lauer
Good morning
Jacob Miller
When you look at your cures for the last year, how many of them would you say was due to modification of the percentage of the whole, and how many of them were natural cures?
Curt Culver
I’ll see, for the year we had a – in modifications we had $388 million, is that right Mike from the reading that …?
Mike Lauer
It is correct.
Curt Culver
Plus another 76 – yes. I’m talking about – So we had what we had I think like $400 million in modifications for the year.
Sorry, I don't remember what the question was.
Mike Lauer
The question is of the roughly 130,000 shares, what percentage of those were mod ? Roughly 10%.
Jacob Miller
So the other 90% were just carried through the regular typical cure process?
Curt Culver
That’s correct, yes.
Jacob Miller
When you broke down the hemp on 30 between April and June, you meant if you said that on 2,100 were cured maybe another 2,500 went by the way side. Now we’re already six months, at least six months past that period and the hemp – the trial period are at longest perhaps is five months.
So where is the representative inventory right now as far as your understanding? What happen to those that …?
Curt Culver
We don't know what the status is then. The (inaudible) have had a difficult with this program.
And so we're not sure where the status is on those remaining 30,000 loans.
Jacob Miller
Thank you very much.
Operator
Our next question comes from Jordan Hammett [ph].
Jordan Hammett
Thanks, guys. Question, if you hadn't had a tax refund, what would the risk-at-cap have been at the end of the quarter?
Curt Culver
Say that again?
Jordan Hammett
If hadn't had the tax refund, what would the risk-at-capital be at the end of the quarter?
Curt Culver
A couple of hundred million dollar impact on risk-at-capital, that question?
Jordan Hammett
Yes.
Curt Culver
What's your next question? I want to have someone calculate it.
Jordan Hammett
Everything has basically been answered.
Curt Culver
$200 million.
Mike Lauer
Well (inaudible).
Curt Culver
We'll tell it after the call, Jordan.
Jordan Hammett
Okay. Thank you.
Operator
Our next question comes from Beth Malone [ph].
Beth Malone
Okay. Thank you.
Good morning.
Curt Culver
Good morning.
Beth Malone
Could you just talk a little bit about the rescission environment. Has it surprised you the amount of rescissions you've ended up doing?
Have you changed your strategy regarding those rescissions? Or is this just the natural progression of the kind of market that we're in?
Curt Culver
Well it's reflective of the 2006 and 2007 books of business. So am I surprised?
Yes, at the level of rescission and fraud that's being found and it's – I mean it's consistent across all the companies in our industry, too. I guess it's indicative of one of your boom periods, things happen like this.
Beth Malone
Well have you become more aggressive than you might have been historically on this or the market's driving this more than (inaudible) you've made.
Curt Culver
The market is driving this.
Beth Malone
And do you see–?
Curt Culver
We're consistent on our application of the policy over years and years. It's just the 2006 and 2007 books, where the various stated income and the various alternative documentation programs.
And unfortunately, there was a lot of fraud prevalent in those books of business. But again, I say not only in our company, but others are finding it at the same level.
Beth Malone
And so, should we assume rescissions are going to trail off over time because they just aren't mature.
Curt Culver
Yes. I would say there still was probably a significant level early in '08.
But after that period of time and since them – as somebody (inaudible) quality of what we're insuring, it should tail off rather quickly.
Beth Malone
Okay. All right.
Well thank you.
Curt Culver
Yes.
Operator
Our next question comes from Bryan Hyre [ph].
Bryan Hyre
Hi. Just one follow-up question on the HAMP modification, you said 2,500 occurred and there was a 10% re-default rate.
So is that 250 of those 2,500 have in turn re-defaulted, is that the right calculation?
Mike Lauer
I believe so.
Curt Culver
Yes, it is.
Bryan Hyre
Okay. Thanks for the clarification.
Curt Culver
Yes. Jordan, on your question on the risk-at-capital, the equity would have been down about $220 million, and risk-at-capital would have been about 22:1, versus 19.4:1.
Operator
Our next question is a follow-up from Steve Stelmach.
Steve Stelmach – Friedman, Billings, Ramsey
Thanks, guys. My follow-up has been answered.
Thanks.
Curt Culver
Okay, Steve.
Operator
Our next question comes from – is a follow-up from Donna Halverstadt.
Donna Halverstadt – Goldman Sachs
Thanks. I just wanted to quickly ask about the move of certain markets off of your restricted market lists and move from other markets from Tier 2 to Tier 1.
Can you tell us exactly how many markets moved categories, whether or not you expect that trend to continue, and whether or not that move – those moves are key factors at your being able to keep your NIW flat year-over-year?
Mike Lauer
I think in the fourth quarter, we moved seven markets from restricted to unrestricted status. Each quarter, and we're in the midst of it right now, we update all of the analysis, performance, and economics, and conducted another review.
And we're in the middle of that. And I would guess in the months here, so we probably have a move from another group of markets from restricted, unrestricted.
So the quarterly process, and we're in the midst of it, and it's based on performance and economic data.
Donna Halverstadt – Goldman Sachs
And how, finally, do you define market?
Mike Lauer
TBSA.
Donna Halverstadt – Goldman Sachs
Okay. Thanks.
Curt Culver
Thanks, Donna.
Operator
I'm not showing any other questions at this time. I'd like to turn it back over to you for closing comments.
Curt Culver
Thank you all for your interest in our company and have a wonderful day. Thank you.
Operator
Thank you. Ladies and gentlemen, thank you for participation in today's conference.
This does conclude the conference. You may now disconnect.
Good day.