May 4, 2010
Executives
Emily Riley – Investor Relations S. A.
Ibrahim – Chief Executive Officer Robert Quint – Executive Vice President, Chief Financial Officer Teresa Bryce - President, Radian Guaranty Scott Theobald – Chief Risk Officer, Radian Guaranty
Analysts
Donna Halverstadt – Goldman Sachs Michael Grasher – Piper Jaffray Matthew Howlett – Macquarie Research [Chris Owens – Soleil] [Bill Drew – Harbin Capital] Steve Wyatt – Morgan Stanley [David Duzenberry – Alts & Greiner] Christopher Neczypor – Goldman Sachs
Operator
Welcome to Radian’s first quarter 2010 earnings conference call. (Operator Instructions) I would now like to turn the conference over to our host, Miss Emily Riley.
Emily Riley
Welcome to Radian’s first quarter 2010 conference call. Our press release, which contains Radian’s financial results for the quarter, was issued earlier today and is now posted to the investor section of our website at www.radian.biz.
During today’s call, you will hear from S. A.
Ibrahim, Radian’s Chief Executive Officer and Bob Quint, Chief Financial Officer. Also on hand for the Q&A portion of the call are Teresa Bryce, President of Radian Guaranty, Dave Fiedler, President of Radian Asset Assurance and Scott Theobald, Executive Vice President and Chief Risk Officer of Radian Guaranty.
Before we begin, I would like to remind you that comments made during the 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 2009 annual report on Form 10-K, and first quarter 2010 Form 10-Q. These are also available on our website.
Finally, before S.A. begins his prepared remarks, I would like to note for participants that due to legal restrictions that apply in the context of the securities offering announced this morning, that we will not address any questions regarding the offering during today’s call.
We ask that all participants limit their questions to our quarterly results and other topics discussed during our presentation today. Now I would like to turn the call over to S.A.
S.A. Ibrahim
Thank you, Emily, and thank you all for joining us today. This morning, I will provide highlights of our first quarter performance along with a few perspectives on the trends affecting our business.
Bob will then cover the details of our financial position before we open the call to your questions. At Radian, the strength of our core mortgage insurance company remains our top priority.
Earlier today, we reported a first quarter net loss of $310.4 million or $3.77 per share compared to a net loss of $21.4 million or $2.69 per share for the same period last year. These results were primarily driven by an increase in our mortgage insurance loss provision which includes an increase in reserves due primarily to higher severity estimates and to the continued aging our inventory.
Importantly, this reserve increase, combined with the decline in the delinquent loan count strengthened our reserve for delinquency significantly for both primary and flow loans. We continue to benefit from the support of our financial guaranty and financial services businesses that have strengthened our core mortgage insurance franchise.
These companies have paid dividends to Radian Guaranty and provided capital support. We announced today the sale of our remaining equity interest in Sherman Financial for approximately $172 million in cash.
This is in addition to the $28 million in dividends paid by Sherman to Radian Guaranty in early April. The sale was completed yesterday and we expect it o produce a pre-tax gain of approximately $70 million in the second quarter and this will further support our risk to capital ratio going forward.
Radian Asset is expected to pay another ordinary dividend of approximately $70 million to Radian Guaranty in June. The risk to capital ratio for Radian Guaranty was 16.9 to 1 on March 31, 2010, which again, was among the lowest in the industry.
This compares to a ratio of 15.4 to 1 in the fourth quarter of 2009 and 17.6 to 1 a year ago. We remain focused on our goal of writing high quality mortgage insurance business and have launched marketing campaigns to promote our mortgage insurance product that are most competitive with the FHA.
We continue to believe that private capital is essential to the recovery and success of the housing finance system, and we have undertaken efforts to ensure that that sentiment is shared among many policy makers and industry leaders as well. In fact, in a meeting last week, with FHA commissioner Dave Stevens, he reiterated to me that we share the very same goal for a more traditional balance in the insured mortgage market between the FHA and the private MI industry for a stronger, more sustainable housing finance system in our country.
We were pleased to report a decline in delinquencies this quarter, which was the first in nearly four years. There was also a drop in the number of new notices, a trend that began late last year, and may suggest a beginning of the credit burnout in the most troubled vintages and product.
You can see this pattern more clearly in our default roll forward chart on Slide 15 of our webcast presentation. In addition, the number of primary delinquencies declined slightly in April and we continue to expect lower numbers of delinquent loans at the end of the 2010 compared to the end of 2009.
We were again successful in meeting our strategic goal of reducing Radian’s noncore risk. In the quarter, we terminated a set of structured transactions that eliminated $102 million of our modified pool risk and reduced our primary delinquency count.
We continue to see opportunities to actively manage our legacy portfolio and commute noncore risks on favorable economic terms. New insurance written in the quarter was $1.9 billion and our new business again, consists of loans with excellent credit characteristics.
We continue to maintain a strong share of this high quality business, with market share greater than 21% in the quarter, which is the highest in the industry. We believe our risk to capital ratio, solid customer relationships, NIW and market share compare quite favorably to our competitors and help to position Radian for success as markets recover.
Another positive trend for our business is the continued increase in the number of modification notices received. While it remains difficult to gather complete data from various customers and servicers, to date nearly 6,000 Radian insured loans have been completed including 1,769 loans in 2009 and increasing to 4,159 in the first quarter of 2010.
As of March 31, 2010, more than 28,000 Radian insured primary loans were pending completion of the modification program including half, which represents nearly 20% of Radian’s primary delinquencies. This compares to more than 22,000 or approximately 15% of primary delinquencies as of December 31, 2009.
In addition, we believe that nearly $2 billion of Radian’s previously written insurance is included in the Hart program. Finally, it’s important to recognize four examples of Radian’s financial strength.
First, Radian’s book value at March 31, 2010 was $20.65 per share. Second, we believe that our existing book of business as of March 31, 2010 contains an embedded value of $1.2 billion on our first lien domestic portfolio as shown on Slide 11.
Third, our investment portfolio remains strong at $6 billion. Finally, it’s important to note that our reserve increase this quarter, when coupled with the decline in delinquent loans, strengthens Radian reserves for delinquency for both primary and flow loans.
And now, I’d like to turn the call over to Bob for details of our financial position.
Robert Quint
Thank you, S.A. I’ll be updating you on the activity and trends for the first quarter 2010 and our financial position as of March 31, 2010.
Our MI provisions for losses of $529 million this quarter is higher than one may have been expecting, considering our improvement in delinquencies. The provision for losses was impacted positively by the change in delinquencies and a small decline in expected lower rates per claim.
However, that impact results by change in the composition of our delinquent inventories, namely a greater percentage of older delinquent loans and larger loan balances, increases in our severity assumptions, and incremental second loss deals reaching their subordination levels. In addition, this quarter we refined the component of our loss reserve estimate relating to severity on delinquencies and pending claims using a more specific loan level input rather than averages and this contributed significantly to the severity increase.
The impact of this refinement is greatest on our pull delinquencies and deep coverage delinquencies. Average claim amounts have also risen due to a greater percentage of claims on 2007 vintage loans, Altay loans and loans in California, all of which have higher average claim amounts.
Because the reserve increase this quarter had a disproportionate impact on two of our small mortgage insurance subsidiaries who solely reinsure pool and deep cover risk from Radian Guaranty, we needed to provide these companies with additional capital in order to maintain their requisite amount of statutory surplus. Approximately $30 of this required capital came from Radian Guaranty and $56 million came from Radian Group.
The dollar amount of denials and residuals for the first quarter of 2010 was approximately $277 million compared to $350 million in the fourth quarter of 2009. Our claims paid for the quarter consisted of $258.8 million of first liens and $8 million of second liens.
We also made $91 million in termination payments. We still expect the total claims paid will be approximately $1.5 billion or the year 2010.
We continue to execute transactions during the quarter that are consistent with the strategy of reducing noncore exposure on favorable economic terms. They are as follows: we terminated another set of structured transactions containing approximately $102 million of modified pool risk, which was included within our primary system.
The detailed impact of this termination is portrayed on Exhibit Q of our earnings release. We also bought approximately $59 million of NIMs for a purchase price of approximately $48 million, which produced a small cash benefit and had minimal GAAP impact as the purchase price approximated fair value.
We will continue to pursue buying NIMs at a discount during the balance of 2010. Secondly, risk enforcement has been reduced to $227 million as of March 31, 2010.
The loss reserve and premium deficiency reserves for second liens as of March 31, is approximately $55 million or 24% of the risk. Other mortgage insurance risk in force, which includes second, NIM and international mortgage insurance have been reduced significantly to $861 million as of March 31, 2010 from $1 billion at year-end 2009.
In Financial Guaranty, there were no material credit changes this quarter. With regard to the one problem CDO ABS transaction, we continue to believe that we will not be required to pay principal until 2036 or later, and that the ultimate principal payment will likely be a significant portion of our total par exposure of approximately $463 million.
Based on updated cash flow projections, which showed some slight improvement, we expect to begin paying claims for interest advances sometime in 2011, and possibly earlier if credit deterioration is worse than projected. At such time, we would be required to put the statutory loss reserve for the present value of future losses which would be probability weighted with a series of potential outcomes and would impact Radian assets and thus Radian Guaranty statutory capital.
We are still carefully watching our Trust CDO exposures. In early January, we eliminated the exposure of $96.6 million of the $212 million exposure on the one transaction that went into the default.
While the substantial deterioration and underlying collateral in the Trust exposures has not abated, we believe it would take a sustained period of banking failures in order for Radian to suffer material claims on our Trust deals beyond the two deals that we have disclosed. Updated details of our trust exposure is presented on webcast live number 27.
A change in fair value impacted the quarter by tightening Radian’s credit spread which was the primary driver of our unrealized loss for the quarter of $78 million. Another $105 million of fair value losses included within the loss on financial instruments line, which also contains other items.
Our NIMs exposures were already consolidated on our balance sheet and due to the implementation of FAS 167 this quarter, we are now required for capital purposes to consolidate three Financial Guaranty transactions including our problem CDO ABS. The consolidation is driven by our control rights in these transactions.
The impact of the consolidation is financial statement geography and gross up only including moving the P&L associated with the transaction to the net loss and other financial instruments and a few other lines. The specific impact of FAS 167 consolidation on both the P&L and balance sheet is presented on webcast slide 12.
If you look at the sum total of our quarter end balance sheet relating to Financial Guaranty derivative exposure and consolidated transactions, we have a net GAAP liability of approximately $550 million associated with the exposure which includes the CDO ABS, NIMs and trusts as well as other corporate CDO exposure. That is the amount of future losses we could absorb in these exposures without impairing our GAAP book value.
The Radiant credit spread continues to tighten as it has so far during the second quarter. We would likely see further significant fair value losses develop absent corresponding tightening collateral spread.
Expenses this quarter were significantly impacted by an increased and variable compensation expenses resulting from an increase in Radian’s stock price during the quarter. The total impact of the stock price increase was approximately $17.5 million for the quarter and represents an increase in expected payout value of employee compensation rates that are tied to the company’s stock performance.
While we are required to accrue this expense on a periodic basis, based on our stock price at the time, the ultimate payout of this compensation is uncertain, and in some cases, will not be made for a number of years. Based on our existing holding company liquidity expectations of sources and uses for the next few years, we still believe we will have sufficient liquidity to cover all of our needs through 2012 including the full repayment of our $160 million June 2011 outstanding debt.
The next principal maturity we have of $250 million in February 2013. We’d now like to turn the call over to the operator for questions.
Operator
(Operator Instructions) Your first question comes from Donna Halverstadt – Goldman Sachs.
Donna Halverstadt – Goldman Sachs
You mentioned your 21% market share in the first quarter. I’m curious where you expect your market share to end 2010 and I’m also curious what your guidance is for fiscal year 2010 NIW.
S.A. Ibrahim
First off, while we celebrate our market share we do not run the business based on any market share targets. Our goal is to focus on writing high quality business and the market share is a derived outcome of writing all the good high quality business that we can write, so we hope that we continue to write a lot more good quality business and the market share will be whatever it is.
Teresa Bryce
I think that really says it all. I think it’s very difficult to predict where we’ll end up for the end of the year, but we’re very focused on writing high quality business.
We’re also very focused on moving share away from the FHA and as part of that, we’ve really focused on making sure that our customers and particularly their loan officers understand the borrower execution for some of our products that’s actually better than FHA and try and make sure that they start using those products.
Donna Halverstadt – Goldman Sachs
And your expectations for 2010 NIW?
S.A. Ibrahim
In terms of NIW, basically it depends on what happens in the market in terms of how much share we can gain back from the FHA. As I mentioned in my opening comments, we are encouraged by the fact that the FHA has been aligned with us and the industry in trying to shift the balance to a much better mix between the private MI and the FHA, so it depends on how successful we are in gaining some of that share back.
The industry volume in terms of mortgages originated continues to be relatively modest, maybe further down the road that’s going to improve. But again, as you know, why that’s happening, some of the reason why the industry volume is low is because of low refi’s and to the extent that we have on our books customers who have been paying for the last three years in spite of the current downturn and they’re a good credit risk, we have the benefit of retaining them longer.
Donna Halverstadt – Goldman Sachs
You talked about the contributions of each of Radian Group and Radian Guaranty needed to make to a couple of the subsidiaries. What’s your outlook for the amount of additional contributions those two entities will need to make during the rest of 2010 and during 2011?
Robert Quint
There may be additional contributions necessary, but we don’t think it will materially impact our liquidity at the holding company or at the operating front.
Donna Halverstadt – Goldman Sachs
As you thought about the company’s needs as well as conditions in the capital markets and the receptivity that your peers enjoyed, what drove you to decide on $500 million of common? Why no convert?
Can you talk about the thought process there?
S.A. Ibrahim
As Emily said in the comment preceding our investor call, we cannot comment on anything to do with our capital raise on this call.
Operator
You're next question comes from Michael Grasher – Piper Jaffray.
Michael Grasher – Piper Jaffray
With regard taking the reserves higher and I think you highlighted severity and longer states delinquencies, can you comment around both of those issues in terms of what’s really driving severity higher when we read and hear about recovery in the housing market, and then also in terms of the longer staged delinquencies, what’s occurring there? Why is that happening in terms of the delinquency staying out there further?
Robert Quint
The delinquency aging has been a continuation of what we’ve seen over the past year plus, so that’s no different. The delinquencies have been getting older and staying in the delinquency pockets pre-foreclosure.
The foreclosures have not been coming through and that’s due to the moratoriums and the attempts to modify. That’s just a continuation of a trend that we have seen.
Michael Grasher – Piper Jaffray
So nothing new there.
Robert Quint
Nothing new. With regards to severity, two components there.
The first one is we do a normal update of our severity assumptions based on the experience and that had a small increase this quarter. And as well, we talked about the refinements to the reserving estimate which looks at a more specific loan level input rather than averages, and that’s something that we’ve been doing over the past couple of years in terms of refinement to our methodology to provide us with a better estimate and that impacted the severity this quarter.
Michael Grasher – Piper Jaffray
Is that sort of the first quarter we’ve seen where you’ve actually gotten to that loan level look if that’s the right term to use?
Robert Quint
There’s a lot of loan level input contained within the reserving estimate and there’s some averaging as well as look back to history. So it contains a lot of both of those things.
But with regards to severity, we felt it would come up with a better estimate to be looking at a more specific loan level with regard to that. There are other components as well to have specific loan level input and there are averages and historical averages in the estimate as well.
Michael Grasher – Piper Jaffray
On the modifications, I don’t recall hearing you say what the reserve impact was from those modifications. I think it was 6,000 were done to date.
Maybe in the quarter do you have a number where the reserves were released against those modifications that were proved?
S.A. Ibrahim
We do not explicitly have any reserve adjustment related to modifications. It’s only indirectly to the extent there’s roll rates but there’s no specific adjustment related to modifications.
Another point to keep in mind in terms of reserves this quarter as well as the contributions of Capital Trust subsidiaries is in the last two years we’ve gotten ourselves to the point that we could absorb those reserve increases, make those capital contributions and still maintain very strong risk to capital ratios in the industry. And our goal is to each quarter, come up with the best reserve estimate we can using the most current information we can and the way I look at it is, how we got to this point this quarter, the fact that given our reserve increases combined with the improvement we saw in defaults in April, we have a much stronger position in terms of reserves as we look forward.
Michael Grasher – Piper Jaffray
Those loans that are going to the modification program, what sort of stage of delinquency are they? Are they earlier?
Are they longer stage? Can you give us an idea around that?
Robert Quint
Most of them have been in the middle stages so it’s not super concentrated in the older bucket. Most of the ones we’ve seen so far have been in the more middle stages.
Michael Grasher – Piper Jaffray
And mid stage being about nine months?
Robert Quint
No, it would be earlier than that.
Operator
You're next question comes from Matthew Howlett – Macquarie Research.
Matthew Howlett – Macquarie Research
Could you just go over what you said on the Financial Guaranty business? I know your own credit spread is tight and that caused the unrealized loss in the quarter.
Can you elaborate on going forward is you credit spreads were to continue to tighten, if they would go back to more historical levels versus if you don’t have any more impairments on the AVS CDS, where the book value would shake out to. Is there some sort of an adjusted book you could give us or how you look at the $20.69 today?
Robert Quint
We disclosed some sensitivity so you can look at our Q and you can see some of the sensitivities around our CDS, what it means to the fair value. But I think the point is that if our credit spreads tighten, that’s one element of the fair value process, so in a vacuum, if they tightened, that would produce fair value losses.
If the collateral spreads tightened, then those would be offset. So it’s not just our spread.
It’s also in relation to the collateral spread. And what we’ve said repeatedly is that if the movements are spread related only, that they will zero out over time and it’s really the credit related item that would be more permanent and if there’s ever credit related items within our derivatives, we always disclose those and point those out.
Matthew Howlett – Macquarie Research
On the CDS, that you’re assuring us is synthetic; we’re talking about corporate CDO’s or investment grade or something. We’re not talking about the ABS that are off balance sheet.
Robert Quint
They’re both fair value but most of our exposure to derivatives is corporate CDO’s and you’d be looking at the CDX or relevant corporate indices to see how those spreads move, and that impacts the fair value as well.
Matthew Howlett – Macquarie Research
I know we’ve asked you this before about what type of reserve you have set aside for the 20% of HAMP, delinquencies that are in HAMP trials today. Is there any way to quantify that more?
There’s been some expectations from servicers out there saying they expect to convert 50% of the trials to permanent over the next couple of months. I think Wells Fargo is out there saying that.
Is there any type of clarity you can give us on reserves set aside for those HAMP trials?
Robert Quint
Those loans are delinquent loans to us, but those would be reserved just like any other loan, so there’s not presumption that some part of them will cure and therefore we take the reserve and therefore change the reserve. Everyone of those loans is reserved exactly like every other delinquent loan.
When they do complete the process, and that cure is reported to us, then the reserve would come off the books. So that’s the way the reserving works.
Matthew Howlett – Macquarie Research
You had a conversation with the FHA. Just related to the short refinancing program and there’s been a lot of talk the MI’s are going to have to share in whether it’s principal write downs, but possibly the short refinancing given it’s not technically a claim down.
There’s talk the GSC’s will come and negotiate with the MI’s. What have they said to you in regard to that program?
Is there any type of conversations?
S.A. Ibrahim
That was not something that came up in FHA commissioner meeting, but let me see if Teresa has any information on that.
Teresa Bryce
With respect to some of the changes of HAMP related to principal forgiveness. There’s some discussion around how the MI’s might participate.
Right now, if there’s forgiveness, it would be forgiveness on the part of the lender or servicer who’s involved with that and there would be a lower loan amount that would be insured on a go forward basis. So more of the conversation has really been around whether or not if that loan were to default in the future, where the amount of coverage would be the original one or the reduced amount.
But that’s been most of the discussion and that’s still being discussed.
Matthew Howlett – Macquarie Research
So nothing on sharing the write downs, but on the short refinancing program, it’s my understanding the loans still have to be current to go into that program, so it’s not necessarily a write down but necessarily that one would be distinguished and the policy would go away. Some look at that as being getting you off the hook.
I don’t know if there’s been any discussion relative to that specific program.
Teresa Bryce
I’m not aware of any.
Operator
You're next question comes from [Chris Owens – Soleil]
[Chris Owens – Soleil]
What was the specific impact of the increase in severity on your reserving for the quarter?
Robert Quint
We haven’t disclosed exactly what it was, but it was a significant portion of the reserve increase.
[Chris Owens – Soleil]
So was it several hundred million?
Robert Quint
It was a significant portion of the reserve increase.
[Chris Owens – Soleil]
Do you think it’s a onetime increase based on the change in your reserving model or is do you think it’s sustainable, you have to kick up reserves by a couple hundred million dollars a quarter to match the new input that you’re putting in your model?
Robert Quint
We update our assumption on severity and a whole host of other things every quarter, so that continues every quarter. But this one refinement that we made in terms of the loan level input, that won’t be done again.
[Chris Owens – Soleil]
So this was sort of a onetime true up if I’m hearing it correctly.
Robert Quint
That specific refinement won’t be repeated.
[Chris Owens – Soleil]
You said in the prepared comments and on the press release that you’re delinquency count is down again in April. Can you give us a number?
How much was it down?
Robert Quint
We just said it was down a small amount.
[Chris Owens – Soleil]
You are recording no future benefit for any sort of modifications?
Robert Quint
Not specifically within the reserving process. However, we do have within our estimate; we project that some of the delinquent loans will cure so within that expectation of cures, that’s where the modifications would fit.
[Chris Owens – Soleil]
Is your cure assumption higher because there’s HAMP or are you just saying that some HAMP shares will come out of that certain regular cure rate that you’re using.
Robert Quint
The cure assumptions are more historically based than having an expectation around specific HAMP numbers.
[Chris Owens – Soleil]
The true up in your reserves from $22,700 to $25,000 average reserve for loan cost, $330 million this quarter, so I guess my question being, if delinquencies decline again in the second quarter and you don’t have this one time true up cost, should we be thinking about break even or profitable quarters going forward or is there any reason we should expect that?
Robert Quint
The reserve estimate contains a whole host of assumptions so we update the assumptions every single quarter. However, over time directionally, if delinquencies decline, then you should see a corresponding decrease in reserves subject to all these other components; severity, size, the roll rates, the rescission estimate.
It’s a lot of things that go into it, but the number of delinquencies is a critical component of the reserving estimate.
S.A. Ibrahim
We’d rather have delinquencies go down.
Operator
You're next question comes from [Bill Drew – Harbin Capital]
[Bill Drew – Harbin Capital]
Could you give us some color as to what you’re seeing in the CVS book given increasing delinquency trends there?
Robert Quint
We have seen increasing delinquency trends, but at this time we’re not concerned about material losses within our few CNBS exposures and they are disclosed within our 10-Q.
[Bill Drew – Harbin Capital]
Do you have an estimate for ultimate delinquencies’ in that book?
Robert Quint
We don’t at the time.
[Bill Drew – Harbin Capital]
What are you seeing on HAMP’s performance given the high back end DTI? Do you have any real data there yet?
Teresa Bryce
We’re just starting to receive that data. We are as I think expected seeing some re-default activity, but I don’t think we have enough history yet to feel comfortable with where that’s going to end up.
[Bill Drew – Harbin Capital]
Given the high amount of rescissions in TC put backs in the industry, have you seen any large [inaudible] stop using MI?
S.A. Ibrahim
In terms of the customers we do business with, we haven’t seen that, though at some point I believe, we all believe that the MI industry is going to have to go out and demonstrate its value proposition to the lenders.
Teresa Bryce
What I would add, I can only speak to Radian, but we haven’t had that occur. But we’ve been very focused on having as I talked about before, a transparent process where we’re very clear about the reason for rescission and we have a rebuttal process where lenders are able to come back and rebut the rescission.
So we believe that has helped at least in a process that is not a popular process.
S.A. Ibrahim
The other point to keep in mind is we, as an industry, and we at Radian have been paying significant amounts of claims to the tune of billions of dollars so it’s not like we have not been paying substantial claims.
Operator
You're next question comes from Steve Wyatt – Morgan Stanley.
Steve Wyatt – Morgan Stanley
At some point you probably get to a point where you’re not stopping the bleeding so to speak and you’re looking at the business longer term, hey there is going to be a turn around. Do you find yourself at the point in this cycle to where you can start looking out in the future next quarter?
What do you see pricing on new policies looking like over the next three to five years?
S.A. Ibrahim
We’re trying to digest your question.
Steve Wyatt – Morgan Stanley
There are different objectives that you have day to day. There are things that you can try and do to manage this very short term, to ensure your success longer term and do you find yourself, hey we’re turning the corner here.
Let’s look out a year or two, three years to build up our market share. Does that make sense?
S.A. Ibrahim
I’m not sure I follow your question but let me see if I can answer it the way I understand it. First, in terms of what we have done, we have focused on dealing with our legacy portfolio in terms of trying to find opportunities to commit and reduce exposure where possible and we’ve been pretty successful, particularly on the Financial Guaranty side, but also on the MI side.
We also actively manage our legacy portfolio in terms of box management. We also very importantly, and perhaps even more importantly than legacy, is the fact that we’ve demonstrated based on our own book of business that we can originate very high quality, profitable business.
Industry pricing has gone up. Credit standards have tightened, and the online book of business in emerging as the best book we’ve seen in our 30-year history.
And, on top of that, we’ve been able to write sufficient good quality business to show a pickup in our share from our historical levels, and I think those factors are all very positive.
Teresa Bryce
I would just add that we’ve been very focused on maintaining good relationships with our traditional customer base which includes a lot of the large lenders. We’ve also been aggressively through increased sales force presence, increasing the number of lenders that we do business with, particularly in the credit union, community bank segment.
So we’ve increased our share of NIW that’s written through credit unions significantly, and we’ve launched the community banking initiative at the end of last year, so we’re focused on building that population of customers as well. So I view that as sort of how we’re positioning ourselves to focus on the future and writing business in the future.
S.A. Ibrahim
As for strengthening over the next three to five years is concerned, I think it’s a very difficult question to answer. All we can say is right now, our pricing has gone up.
At the same time we have been successful in expanding our share of good quality business and that produces a very attractive ‘09 book of business and ’10 book of business.
Steve Wyatt – Morgan Stanley
How much higher are those premiums over last year among a high quality policy? Is it 15%?
S.A. Ibrahim
Approximately 20% or a little higher than that.
Operator
You're next question comes from [David Duzenberry – Alts & Greiner]
[David Duzenberry – Alts & Greiner]
On the subject of possibility of burn out and I’m sure it’s not an easy question to answer, but as I look at your slide deck on Page 13, and you can see the vintages in ’05, ’06, ’07 showing a nice flattening out or even in ’05 started to come down a little bit. How do you evaluate burn out versus just seasonal trends?
Scott Theobald
What we do is we look at whether or not we’re getting credit for our customer. Now as we look at the composition of defaults between first time defaults or repeat defaults, and as we’ve said in a previous call, in the older vintages we’re seeing considerably fewer new defaults and most of the default notices are for loans that have already been in default.
In the 2008 and 2008, we’re still seeing signs of new defaults as opposed to repeat defaults, but in general, the trends are suggesting credit burn out, but it’s a little bit early to call a cyclical change here.
[David Duzenberry – Alts & Greiner]
The re-default is really you get a default notice. I become current again, back on track and then I re-default.
Do you view that as a sign of what?
Scott Theobald
By notices of default consists more of repeat defaults as opposed to brand new defaults. That’s usually a good sign that the book is starting to burn out.
[David Duzenberry – Alts & Greiner]
So the ’05, ’06, you’re seeing more repeat defaults than new defaults. ’07 and ’08 is still a healthy amount of first time defaults.
Scott Theobald
That’s correct.
Operator
You're next question comes from Christopher Neczypor – Goldman Sachs.
Christopher Neczypor – Goldman Sachs
I was wondering if you had an estimate or the run off value of your book, maybe in a similar manner to the way Imagic and PMI have given. And then what was the statutory capital level embedded in the 16.9% risk of capital in the first quarter?
S.A. Ibrahim
We’ve been sharing our PDR information for quite a few quarters and that has similar information and I think it’s now been shared for several quarters.
Christopher Neczypor – Goldman Sachs
If I think about the total book so including Financial Guaranty, is there a way to think about that as well?
Robert Quint
We’ve just provided for the Mortgage Insurance business which is on Slide 11 of the webcast slides. With regard to Financial Guaranty, I think you’ve seen consistently that the results absent the spread changes which tend to move those results around it’s been close to breakeven pretty consistently.
Christopher Neczypor – Goldman Sachs
On that topic, the decline in the NPR looks like it was about $300 million to $400 million if I’m reading it correctly in the quarter. Do you have an update for what that would be through April?
Robert Quint
In terms of the spread changes, no we didn’t quantify it but we said that if the spread continues to tighten absent similar movement in collateral spreads we could see significant fair value loss.
Christopher Neczypor – Goldman Sachs
And then just the question on the stat cap?
Robert Quint
I don’t have the exact number. We can get that for you offline.
Operator
That does conclude our question and answer session. I’ll turn the conference back over to S.A.
Ibrahim.
S.A. Ibrahim
Thank you all for joining us on the call today. We’ll see you next quarter.
Thanks.