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Text: 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.
Also, on hand, for the Q&A portion of the call is Derek Brummer, President of Radian Mortgage.
These are also available on our website.
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.
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 pre-tax 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.
As noted on Slide 22, we continue to make progress against our targets as communicated earlier this year, with Homegenius revenues still tracking toward our goal of $150 million for 2021.
Our target for pre-tax operating income before allocations was updated primarily to reflect adjustments made this quarter to recognize the impact of companywide 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.
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.
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.
Now operator, we would be happy to take questions.

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q3 adjusted operating earnings per share $0.67.
q3 gaap earnings per share $0.67.
q3 revenue rose 51 percent to $45.1 million.

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