So today, the rate environment, we would say, we would say it’s constructive because it’s stable, and also price allows us to strike that right balance between making sure that we first and foremost keep our customers and their borrowers in mind and prioritize them, but also don’t lose sight of the need for us to deliver value, balance sheet stability, and returns for shareholders.
Mihir Bhatia: Got it. Thanks. And then maybe just switching for a second, I wanted to follow up on the cure rate discussion from a couple of answers ago. What is driving? I mean, I understand what you said, it’s a little bit higher than past, but it is still a pretty high rate. And I just wanted to understand, do you know what is driving the cure rate higher? Is it the new GSE [ph] programs post-pandemic? Is that changed in any way you’re thinking about the default to cure assumptions? Is it too early to tell on that? Just trying to understand if the higher cure rate is not true?
Adam Pollitzer: Yes. It’s a great question. In fact, we would view there as being perhaps opportunity going forward. We really don’t have a rich historical data set to understand how some of the new programs, the new modification waterfall, the codification of the payment deferral program will ultimately impact long-term credit performance. We’re optimistic, but that’s not explicitly factored in or even implicitly factored into our reserving. So what we’re seeing, look, I’d say generally speaking, our existing borrowers remain incredibly well situated. They’ve got strong credit profiles. They’re in loans that were originated under a rigorous underwriting review. Those loans were used to fund the purchase of a primary residence, and many borrowers, including those in default, benefit from having significant embedded equity positions.
They’re in-homes that on a relative basis have really manageable debt service obligations because they’ve got historically low 30-year fixed note rates. I would say there’s real value in them curing out, right? Because curing out of their default allows them to retain that historically low 30-year fixed note rate and to obviously stay in a house today with significant embedded equity. And so, we’re seeing borrowers, even when they run into challenges, they’re generally been able to recover and cure their defaults before we see claims develop. And that’s obviously a real positive, because anything that keeps a borrower in their homes we think is valuable for the borrower, certainly. We think it’s valuable as a social matter. We think it’s valuable from an economic standpoint.
And ultimately, it’s beneficial for us as a claim cost matter.
Ravi Mallela: Adam, I just wanted to – here I’ll just add one additional thing. We’ve talked about it in the previous quarter that there’s a degree of seasonality that tends to come through. And so in Q1, we typically see a bit of improvement. And so what we saw in this quarter as we got through the end of the quarter was a little bit of that seasonality coming through and boosting our cure rates as a result.
Mihir Bhatia: Got it. Have you disclosed how much embedded equity is in like the default population or in-force population?
Ravi Mallela: Yes, it’s meaningful. So we don’t disclose it for the in-force population. We obviously do a mark-to-mark in ourselves. We have shared what the equity position of our default population is on our installs in the past and we’re happy to. So at March 31st, 91% of our default population had at least 10% equity. 77% had at least 15% equity. And 65% had at least 20% equity underpinning their mortgages. And obviously equity provides both a significant incentive for them to cure out of their defaults. And it also provides them the ability to sell their way out of a default without ultimately progressing to a foreclosure and claim.
Mihir Bhatia: Got it. Thank you. And then my last question, and then I’ll give someone else a chance. I just wanted to ask about, you know, you mentioned seasonality obviously seasonally entering, I guess, moving season or the seasonally stronger housing season. What are you hearing from your partners, customers, originators, or as you come around? Are you hearing more optimism this year? Just curious on what you’re hearing. Is there particular markets where you’re more excited, less excited, love to hear your thoughts? Thank you.
Adam Pollitzer: Yes, look, certainly there was, I think, increasing optimism earlier in the year and we saw degrees of increases in activity. I think that was for a few reasons. One obviously raised a dip from their highs late last year and that brought some new activity to the market. A big part of it, though, is I think also, prospective buyers have recalibrated, right? This is the new reality. Higher for longer is the new reality. And at some point, they’re not staying paused with the need for them to — the decision to buy a house is really driven by life events, first and foremost. There’s obviously a heavy financial aspect to it, but its life events that drive the borrowers and the buyers’ decisioning. And those life events don’t pause simply because interest rates have moved higher.
And so we saw a large part of the market we think really recalibrate. Let me just see what’s happening now. Obviously, rates have shifted higher over the last few months. But broadly speaking, we obviously delivered strong NIW production, growth in the insured portfolio and heavy growth in NIW production in the first quarter. And so, we’re still optimistic. When we had our call last quarter, we shared some perspective on our outlook for market size, MI market size, this year. And we shared that we expect the MI market size, the NIW opportunity, will be roughly the same size this year as it was last year. Last year was about $285 billion of NIW volume. And we still believe and still expect that that’ll be where the industry lands roughly this year.
Mihir Bhatia: Got it. Thank you so much for taking my questions.
Operator: The next question comes from [indiscernible] with BTIG. Please go ahead.
Unidentified Analyst: Hey guys, good afternoon. Hope you’re all doing well. I guess first one just on ROE, Adam, you know, looks like you’ve been putting up sort of high-teens over the last few quarters and 18.2% again this quarter. Can you just maybe talk about the sustainability of that ROE over the next year or so? And how should we be thinking about upside-downside ranges going forward?
Adam Pollitzer: Yes, look, I think it’s a good question. So I want to — it’s nice to have you back on our calls. We always appreciate spending time with you. And so, we understand the question. We understand the focus on, we say, return and earning development patterns. What I would instead focus you on, though, is the fact that we have a large high quality and short portfolio with massive embedded value. We’ve got a terrific team that’s helping us to lead with discipline, innovation, and efficiency. And most importantly, we see a tremendous long-term need from our customers and their borrowers for continued down payment support. We just delivered record profitability, another quarter of 18.2% ROE, and we’re growing book value and book value per share on an accelerated pace.
As we look out over the next year where things trend, as you noted, we’ll see natural fluctuations period to period. That’s normal, right? Our volume, pricing, persistency, claims, expenses, capital, all of these items are never going to be static. But over the long term, we expect it will be able to continue to grow book value at an accelerated pace. And that, you know, we’ll be having this conversation one, two, and three years forward from where we are now from a successively higher, stronger, and more valuable perch, regardless of how ROE develops, you know, say over a 12-month period.
Unidentified Analyst: Got it. And Adam, you mentioned sort of this secular trend in the industry a few times now. And so I’m just wondering, you know, it seems like, look, housing affordability continues to be an issue in the U.S., right? And obviously, that’s not great for home ownership, but it could be an interesting opportunity for MI, right, where you could just continue to penetrate the market even further if fewer folks can put 20% down. So just curious if you try to sort of size that opportunity, like incremental opportunity, as we think long-term.
Adam Pollitzer: Yes. So, so good question. And in fact, it is one of the secular drivers. And so, if we tally those, we expect that the housing market broadly will expand and origination volume overall will rebound. We’ve got the underlying drivers, right, a population growth, serving as a demographic tailwind. There’s also the practical and emotional pull towards home ownership, right? So headship rates are increasing. The supply demand imbalance that we see across almost all markets nationally is driving long-term house price appreciation. And for our industry and for us, because rateable exposure is not based on the number of homes, the number of loans that we ensure. Rather, it’s based on the dollar value and size of those loans rising house prices which drag loan sizes higher also provide a tailwind to growth.
And then as you noted, we do think that we will see an increasing number of borrowers going forward who need down payment support and who will find success and value and turn into the private MI industry. And so, we have highlighted this for some time. We candidly think it’s a bit underappreciated, but the long-term growth opportunity. And let’s put it into very real practical terms, right? 2023 was the year in which the private MI industry delivered $284 billion of NIW volume. Almost all of that was purchase activity. Obviously, with rates moving where they had, there was very, very little refinancing volume. That $284 billion of NIW volume, if you scope out the peak pandemic years, represents the second or third largest private MI market ever.
And at the same time, the origination environment, right, was quite stressed. And there was the smallest number of loans originated in the U.S. since sometime in the mid-90s. The data gets a little bit hazy earlier than 2000, but sometime between 1995 and 1997 is the last time that we had that few number of transactions, number of loans originated in the U.S. And if you pair those together, what we had is one of the largest MI markets ever. Well, at the same time, we had one of the smallest origination markets ever. And from our vantage point, we think that that sets a very high floor for where MI industry NIW volume will go rolling forward.
Unidentified Analyst: Yes, all good points. Thanks for the thoughts.
Operator: The next question comes from Rick Shane with JPMorgan. Please go ahead.
Rick Shane: Hey, guys, thanks for taking my questions this afternoon. Look, when we look at the reserve coverage as a function of defaults or risk in-force, it’s actually been very steady quarter-over-quarter. That suggests that as you are experiencing cures within the portfolio, that they’re sort of relatively evenly distributed in terms of aging, because otherwise you would sort of see some seasoning, you might see an increase or decrease in the reserve rate otherwise. Is that the right way to think about it? And the other part of that question is, are there certain cohorts or vintages where you were seeing underperformance in terms of roll rates?
Adam Pollitzer: Rick, it’s a great question and your spot on. And so if we put some numbers to it, in the first quarter, the average reserve, net reserve, so it takes into account reinsurance, the average net reserve that we established against each of our new notices that came through in the period was $15,200. In the fourth quarter, it was $15,500. These are inconsequential marginal difference between the two. We are seeing a lot of consistency quarter-to-quarter in terms of the profile of borrowers that are emerging in default status and also those that are curing out. And so it’s not just, as you know, it’s not just that the size of the default population is staying roughly constant, a 20-count move from year end through the end of the first quarter, but also the underlying profile and characteristics of the borrowers and the loans, the properties are all staying very consistent.
