MGIC Investment Corp. (MTG)’s Fourth Quarter 2014 Earnings Call Trasncript

Q: Okay great, that’s helpful. And if I can just turn to slides 19 and 20 in which you’re comparing conventional with MI versus FHA insured, you guys have prepared something similar at the end of 2013 when there was a rumor that LLPAs or a notion that LLPAs might be raised. When I look at the spread between the conventional rate and the FHA rate it’s tighter now than it was at that point. Is that based on what the market is offering today or is I’m just wondering why the spread differential is narrower now than it was then?

Curt S. Culver – Chairman and CEO
Yeah, well I think that’s a lot to do with it, and so I mean it ebbs and flows overtime. Two years ago the spreads were, probably at maybe, as I recall they are all time highs in the secondary market execution. Today they’ve tightened up quite a bit they are path tighter than normal, you can actually go out to the largest lenders websites and see that they’re offering conventional interest rates at a lower coupon than FHA where traditionally you’d see a band anywhere from an eight to three-eight higher than conventional over FHA.

So that’s why I said earlier, there’s a lot of dynamics that go into the pricing on this. We’re showing what we think is a more traditional view of where the spreads are with interest rates where conventional is typically a little bit more expensive on the coupon because of the inherent differences of Fannie versus Freddie & Fannie and then layering into how lenders pay for those fees or our borrowers pay for those fees that the GSEs charged in the form of higher rate, but that can change by the hour quite frankly.

Q: Got it, thank you and Curt congratulations.

Curt S. Culver – Chairman and CEO
Thank you.

Operator
Our next question comes from Douglas Harter with Credit Suisse. Your line is open.

Q: Thanks. I was just hoping you guys could help me sort of reconcile and what’s going on in the industry with the pricing differential on a large portion of the LTVs and your commentary that mortgage bankers prefer to work with conventional versus FHA? I guess why is it that we’re still sort of well below historical market share for the private industry and sort of what changes to sort of get back to that level?

Curt S. Culver – Chairman and CEO
As this all plays out, I think again what will happen. I think the point that’s not noted is the fact that the VA is now 25% of the market. I think when this is all said and done we will be back to traditional where the conventional is 50% and FHA will be 25% and VA will be 25%. I mean back when 10 years ago VA was insignificant in that number. So that’s why our share is not higher than it was back then right now, is more VA related and FHA related. So and God bless our veterans, the more we do in that area it’s just better for everyone. So I think the real difference is the fact that VA wasn’t in the old number frankly and is a significant part of today’s number.