Eric Hagen: Okay. Yes, just curious what kind of returns you guys are expecting in GSE CRT deals.
Rohit Gupta: So I think on the GSE CRT deals, we have not given any specific guidance, Eric, on type of returns. What we have said is we like the quality of underwriting, and we like the returns on those transactions. And the way we actually structured Enact Re right out of the gate was and Enact Re is structured in a very capital-efficient, expense-efficient way and it leverages the ratings, the scale of EMICO and our entire insurance operation. So we expect our returns to be very much in line with the market returns on those transactions. And we are continuously participating in, as I said in my prepared remarks, in every deal, at least up to this point, that has been coming to market. So that hopefully shows you that we find the returns attractive.
Eric Hagen: Yes. That’s helpful. Lots of attention in the market around lenders having to buy back loans from the GSEs when there’s a breach in the underwriting process of any sort, scratch and dent kind of loans. Can you describe how that maybe impacts you guys and just how you see that maybe developing going forward?
Rohit Gupta: Yes, Eric, it’s — for us, that process has limited applicability to us. We have our own independent processes, both for non-delegated underwriting and for delegated underwriting where we do essentially quality assurance checks at different frequencies for different lender segments. And we have our own view of loan quality for each lender and each customer segment, I would say, that we keep an eye on. So if a lender’s performance is deteriorating from a manufacturing quality perspective, we work with that lender to go through training, to remediate whatever the reason was and if their quality still doesn’t approve, we move them from delegated to non-delegated. As far as GSE buybacks are concerned, I think those are more driven by rules that GSEs use to determine that loans have significant defects and then there’s an entire process around early notification and then putting the loan back which has a very, I would say, disproportionate impact on lender economics because not only are you getting a loan back on your books, more than likely that loan has a 3% note rate in an environment where market rate is 7% to 8%.
So you also take a mark-to-market hit on that asset. So from a quality perspective, as I said in our prepared remarks, we like the manufacturing quality in the market. We actually calibrate our processes with GSEs and give them feedback. So we are satisfied with manufacturing quality, and we see this much more as a secondary market issue between GSEs and originators.
Eric Hagen: That’s all I have. Thank you, guys.
Operator: And your next question comes from the line of Geoffrey Dunn with Dowling. Your line is now open.
Geoffrey Dunn : Thanks. Good morning. I’m curious what your thoughts are, is Bermuda adopts this 15% tax rate. Obviously, there might be plus or minuses around that. But how do you think that will affect the returns and competition in the GSE CRT market?
Rohit Gupta: Good morning, Geoff. Very good question. So as we said last quarter, to clarify our expectations at Enact Re, Enact Re does not benefit from any kind of tax efficiency based in Bermuda because taxes are consolidated in the U.S. As far as Bermuda participants are concerned with the higher taxes in Bermuda, if it’s implemented, those participants might need higher returns from the transactions, everything else being held constant, that could actually lead the prices to be higher and for us, that would mean higher returns. So I would expect that to be good for us. We are very happy with the quality and the return. So if there is less capacity from others and that means more capacity or higher prices for us, I think we see that as a net positive.
Geoffrey Dunn: Okay. And I know — just following up with the prior question, can you qualify those returns right now? Are they at least on par with the primary U.S. business?
Rohit Gupta: So Geoff, very good question. And unfortunately, we also haven’t given guidance on the U.S. primary returns recently. We generally describe our returns as attractive in the primary business. And I think the toughest thing in this environment is we see a lot of uncertainty in the market in terms of what scenario plays out. I know the market has been talking about some kind of weakness in economy, at least majority of the economies for almost 18 months, and that hasn’t happened. So instead of picking a point estimate and giving you returns, we believe that our returns are very much in line with our expectations, and we believe the price increases we have done, including the price increases in the third quarter in the primary business makes the primary business attractive.
And we do think that for the CRT business we are writing, those returns are also attractive to us. And especially, we are talking about different structures there. In the CRT market, we are writing mezzanine risk. So that obviously increases the attractiveness of those returns because in base case scenario, those transactions are not attaching from a loss perspective.
Geoffrey Dunn: Okay. Thanks.
Operator: And we have no further questions at this time. I will now turn the call back over to Rohit Gupta.
Rohit Gupta : Thank you, Bella. And thank you, everyone. We appreciate your interest in Enact, and I look forward to seeing some of you next week at the JPMorgan Conference in Florida. Thank you.
Operator: This concludes today’s conference. Thank you for your participation. You may now disconnect.
