What changed in this filing

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Item 1A. Risk Factors

2020-08-06 compared with 2020-05-07 · 94 added, 54 removed, 159 unchanged (48% of the section changed)

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The risks described herein and in our 2019 10-K are not the only risks we face, as there are additional risks and uncertainties not currently known to us or that we currently deem to be immaterial which may in the future adversely affect our business, financial condition and/or operating results.

The recent COVID-19 outbreak could materially adversely affect our business, results of operations and financial condition.

Due to the unprecedented and rapidly changing social and economic impacts associated with the COVID-19 pandemic on the U.S.

and global economies generally, and in particular on the U.S.

housing, real estate, housing finance, and mortgage insurance markets, we are closely monitoring developments related to the COVID-19 pandemic to assess its impact on our business.

Currently, COVID-19 is having a major impact on nearly every sector of the U.S.

economy, including construction, public and private infrastructures, financial services, hospitality industries, manufacturing, travel, trade, tourism, the healthcare system, food supply, consumption and overall economic output, and on the financial, capital and credit markets.

The COVID-19 outbreak could materially adversely affect our business, results of operations and financial condition.

We continue to closely monitor developments related to the COVID-19 pandemic to assess its impact on our business.

As a result of the COVID-19 pandemic, the U.S.

federal government and certain U.S.

states have adopted various social distancing measures and have ordered businesses closed or have placed material restrictions on operations.

This has resulted in widespread travel restrictions and many businesses are not currently operating or are operating at significantly reduced levels.

Due to the outbreak of the COVID-19 pandemic, there have been a number of governmental and GSE efforts to implement programs to assist individuals and businesses impacted by the virus.

The GSEs, the primary purchasers of mortgages we insure, have adopted certain measures to assist borrowers impacted by COVID-19.

On March 18, 2020, the GSEs announced suspension of foreclosures and evictions for at least 60 days.

Similarly, earlier in March 2020, the GSEs announced that they would provide payment forbearance to borrowers impacted by COVID-19, allowing for mortgage payments to be suspended for up to 12 months due to hardship caused by COVID-19.

states have adopted numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders, social-distancing measures and business shut-downs.

The COVID-19 pandemic and related containment measures have had, and are expected to continue to have, a substantial negative impact on nearly every sector of the U.S.

economy and on the financial, capital and credit markets.

Since the outbreak of the COVID-19 pandemic, there have been a number of governmental and GSE efforts to implement programs designed to assist individuals and businesses impacted by the virus.

On March 27, 2020, the U.S.

Congress enacted the CARES Act.

Among many other things, the CARES Act suspends foreclosures and evictions for at least 60 days from March 18, 2020, on mortgages purchased or securitized by the GSEs.

In addition, the CARES Act enacts into law a requirement to provide payment forbearance on such mortgages to borrowers experiencing a hardship during the COVID-19 emergency.

The CARES Act provides financial assistance for businesses and individuals and targeted regulatory relief for financial institutions.

Among many other things, the CARES Act suspended foreclosures and evictions for at least 60 days from March 18, 2020, on mortgages purchased or securitized by the GSEs, which moratorium has been extended by the GSEs through at least August 31, 2020 and may be further extended.

In addition, the CARES Act enacts into law a requirement to provide payment forbearance on mortgages to borrowers experiencing hardship during the COVID-19 emergency.

Forbearance under the CARES Act allows for a mortgage payment to be suspended for up to 360 days due to hardship caused by COVID-19.

The CARES Act also provides for enhanced

unemployment benefits, direct aid to individuals in the form of refundable tax credit rebates and increased flexibility under retirement plans.

Due to the evolving and highly uncertain nature of this crisis, it is too soon to fully assess or predict the ultimate impact COVID-19 will have on the markets in which we operate, but we believe it will be material and could adversely affect our business, operations and financial condition.

The CARES Act also provides for enhanced unemployment benefits, direct aid to individuals in the form of refundable tax credit rebates and increased flexibility under retirement plans, among other things.

The GSEs, the primary purchasers of mortgages we insure, have also adopted certain measures to assist borrowers impacted by COVID-19.

Consistent with the CARES Act, the GSEs will provide a forbearance plan to any borrower who requests a forbearance with an attestation of the financial hardship, directly or indirectly caused by the COVID-19 emergency;

and no additional documentation other than the borrower's attestation to a financial hardship caused by the COVID-19 emergency is required.

Borrowers that avail themselves of forbearance relief will not incur interest or late fees on deferred amounts.

In addition, the GSEs have announced that, at the end of a forbearance plan, the affected borrower will not be required to pay back their

reduced or suspended mortgage payments in one lump sum, but may be eligible for a number of different options offered by their mortgage servicer depending on their financial situation, including:

• if the borrower is unable to repay their deferred payments all at once and can afford to pay a higher monthly mortgage payment for a period of time, the borrower may be eligible for a repayment plan that allows them to repay past due amounts over a period of time;

• if the borrower can afford to resume their monthly mortgage payment, they may be eligible for a payment deferral in which missed mortgage payments are due at the sale or refinancing of the home or are moved to the end of the maturity of the loan;

• if the borrower has a sustained reduction in income and is unable to afford their regular monthly mortgage payment, they may be eligible for a loan modification that changes the terms of the mortgage loan to enable an affordable payment, including through a change to the maturity and amortization schedule of the mortgage loan.

Due to the evolving and highly uncertain nature of this crisis, it is too soon to fully assess or predict the ultimate impact COVID-19 will have on the markets in which we operate and on our business, but we believe it will be material and could adversely affect our business, operations and financial condition.

We are currently unable to estimate precisely the magnitude of the impact that the pandemic will ultimately have on our business, operations and financial condition.

We believe there are or will be a range of adverse effects on our markets, customers and new business, revenues, loss development and related impacts to our capital needs, employee health and productivity, investment portfolio performance, and ability to access capital and reinsurance markets if we need to.

In turn, these impacts may cause changes, which also cannot be precisely determined at this time, to our estimates of future earnings and other guidance we have provided to the markets.

In particular, we believe we will experience the following impacts, among others:

• Efforts to mitigate the pandemic, including government-mandated business shutdowns, requests or orders for employees to work remotely, and other social distancing measures could adversely impact our ability to continue to conduct our business.

• Containment measures implemented to mitigate the negative effects of the pandemic could adversely impact our ability to continue to conduct our business.

Although we have been able to continue operations under our business continuity program, the spread of COVID-19 could negatively impact a significant number of our employees and the availability of key personnel necessary to conduct our business activities.

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Further, extreme market volatility may leave us unable to react to market events in a manner consistent with our historical practices in dealing with more orderly markets.

• We expect that the COVID-19 pandemic, including COVID-19-related illnesses and initiatives taken to reduce the transmission of COVID-19, will affect the number of new mortgages available for us to insure.

• The COVID-19 pandemic and related containment measures could also affect the number of new mortgages available for us to insure.

Our NIW volume and future revenues are significantly dependent on the volume of high-LTV loan originations.

If there is a significant decline in our NIW, our future revenue could be negatively impacted.

• Mortgage delinquencies are typically affected by a variety of factors, including illness, death, unemployment and other life events, among others.

In the current environment, if borrowers take advantage of the wide-spread availability of forbearance programs, we are likely to experience a significant increase in forbearance-related delinquencies on our insured loans.

While there are efforts underway to combat the spread and severity of COVID-19 and the related economic impacts, these measures may be ineffective in mitigating the spike in NODs we expect to receive as a direct result of illness or economic hardship that may arise from COVID-19.

• While the forbearance programs currently in place are designed to provide bridge assistance to borrowers experiencing hardship so that they may continue to pay their mortgages in the future, when we receive a NOD on an insured loan, including one arising from a COVID-19 forbearance, we would include such loan in our default population for the purposes of setting loss reserves.

In addition, PMIERs generally require us to treat such loans as non-performing, which then increases the capital we are required to hold.

Non-performing loans that have missed two or more payments are generally assessed a significantly higher capital charge than performing loans.

Although loans under a COVID-19 forbearance may not be reported as delinquent for credit reporting purposes, it is unclear how the GSEs will treat such loans for purposes of satisfying PMIERs financial requirements.

If the loans are considered delinquent for the purposes of PMIERs, it is unclear how the GSEs will calculate the additional minimum required assets associated with delinquent mortgages that are subject to COVID-19 forbearances.

PMIERs currently provides for a discount factor based on FEMA declared disasters.

The GSEs added these provisions in 2018 in response to hurricane disaster experiences;

however, PMIERs does not limit its application to hurricane disasters.

FEMA has made a Major Disaster Declaration in all 50 states in response to the COVID-19 pandemic.

Our application of these PMIERs provisions to loans with COVID-19 forbearances are in part based on our subjective interpretations, which may be different than how the GSEs intend to address asset requirements for loans impacted by COVID-19-related defaults.

There is a risk that the GSEs or FHFA may disagree with our interpretation or application of PMIERs financial requirements, which may require material changes to the assets we are required to hold.

The impact to our capital needs and incurred losses could be material and adversely impact our NIW opportunity and our business, results of operations and financial condition.

Whether delinquencies ultimately result in claims will depend on a variety of factors, including the number of NODs received as a result of the COVID-19 pandemic, the length of the crisis and ultimate success of forbearance, government stimulus and other initiatives put in place to assist homeowners with curing their delinquencies.

Due to the inherent uncertainty and significant judgment involved in our assumptions when we establish loss estimates, they may turn out to be materially inaccurate and we can provide no assurance that actual claims paid by us, if any, with respect to NODs arising from the pandemic will not be substantially more than the reserves we establish for such NODs.

• Mortgage delinquencies are typically affected by a variety of factors, including illness, death, unemployment and other life events, among others, many of which are likely exacerbated by the COVID-19 pandemic.

While there are efforts underway to combat the spread and severity of COVID-19 and the related economic impacts, these measures may be ineffective in mitigating the spike in defaults we have received, and expect to continue to receive, as a direct result of the COVID-19 pandemic.

It is unclear how many borrowers will obtain forbearance plans, the length of assistance borrowers will require, and whether borrowers will be able to resume their mortgage payments thereafter.

Increases in unemployment as well as borrowers entering into forbearance plans will result in further increases in the defaults we receive in the near term.

In addition, as a result of COVID-19-related relief programs, the defaults related to the pandemic, if not cured, could remain in our default inventory for a protracted period of time, potentially resulting in higher levels of claim severity for those loans that ultimately result in claims.

There may be additional, extended or extensive forbearance programs or other changes in regulations or laws which may adversely impact us.

• We include a loan in our default population and establish loss reserves on such loan when we have received notice from the servicer that as of a particular payment date, the borrower has missed the preceding two or more consecutive monthly payments.

In addition, PMIERs generally requires us to treat such loans as non-performing, which then increases the capital we are required to hold against such loans.

Under PMIERs, non-performing loans that have missed two or more payments are generally assessed a significantly higher capital charge than performing loans.

The GSEs issued PMIERs guidance, effective June 30, 2020, on the risk-based treatment of loans affected by the COVID-19 crisis (COVID Guidance).

The GSEs clarified that for each non-performing loan that:

i) has an initial missed payment (as defined in the COVID Guidance) occurring on or after March 1, 2020 and prior to January 1, 2021 (COVID-19 Crisis Period);

or ii) is subject to a forbearance plan granted in response to a financial hardship related to COVID-19 (which shall be assumed to be the case for any loan that has an initial missed payment (as defined in the COVID Guidance) occurring during the COVID-19 Crisis Period and is subject to a forbearance

plan), the PMIERs charge on such non-performing loans is adjusted by a 30% multiplier (inversely, a 70% haircut).

As such, the PMIERs risk-based required asset charge for all newly delinquent loans nationwide (including those that go delinquent under a forbearance program) are reduced by 70%.

Under the COVID Guidance, non-performing loans that are subject to a forbearance program granted in response to a financial hardship related to COVID-19 will benefit from a permanent risk-based required asset haircut for the duration of the forbearance period and subsequent repayment plan or trial modification period.

As a result of costs incurred in connection with rising defaults associated with the COVID-19 crisis, the impact to our capital needs and incurred losses could be material and adversely impact our NIW opportunity and our business, results of operations and financial condition.

• Whether delinquencies ultimately result in claims will depend on a variety of factors, including the length of the crisis and ultimate success of forbearance, government stimulus and other initiatives established to assist homeowners with curing their delinquencies.

Due to the inherent uncertainty and significant judgment involved in our assumptions when we establish loss estimates for loans in default, they may turn out to be materially inaccurate and we can provide no assurance that actual claims paid by us, if any, with respect to defaults arising from the pandemic will not be substantially more than the reserves we establish for such defaults.

• Our master policies require insureds to file a claim no later than 60-days after completion of a foreclosure, and in connection with the claim, the insured is generally entitled to include in the claim amount (i) interest (capped at three years) and (ii) certain advances, each as incurred through the date the claim is filed.

Under our master policies, a national foreclosure moratorium of the type currently required will not limit the amount of accrued interest (subject to the three-year limit) or advances that may be included in the claim amount.

If the duration of the current foreclosure delay mandated by the GSEs and CARES Act is extended beyond the current 60-day period (from March 18, 2020), loans that were in our default inventory with defaults unrelated to the COVID-19 crisis, which had not yet gone through foreclosure may remain in a pre-foreclosure default status for a prolonged period of time, which would delay our receipt of certain claims for loans that do not cure and could increase the severity of claims we may ultimately be required to pay after the moratorium is lifted.

• Home values could materially decline as a result of a persistent economic downturn arising the COVID-19 pandemic.

Depreciation in the values of properties underpinning our insured loans may increase the likelihood of default and negatively impact borrowers’ abilities to sell their properties for amounts sufficient to cover their unpaid mortgages.

If the duration of the current foreclosure moratorium mandated by the GSEs is continued beyond August 31, 2020 for an extended period of time, loans in our default inventory, including those with defaults unrelated to the COVID-19 crisis that had not yet gone through foreclosure, may remain in a pre-foreclosure default status for a prolonged period of time, which would delay our receipt of certain claims for loans that do not cure and could increase the severity of claims we may ultimately be required to pay after the moratorium is lifted.

• Home values could materially decline as a result of a persistent economic downturn arising from the COVID-19 pandemic.

Depreciation in the values of properties underpinning our insured loans may increase the likelihood of default and negatively impact borrowers' abilities to sell their properties for amounts sufficient to cover their unpaid principal.

In turn, the frequency or severity of losses we may incur would be negatively impacted.

• Our servicers could experience liquidity impacts, which could affect their willingness and/or ability to continue to pay premiums to us.

• Servicers of our insured loans could experience liquidity impacts, which may affect their willingness and/or ability to continue to pay premiums to us.

Although our master policies do not require payment of premiums after a loan has gone into default, most servicers continue to remit premiums to us to avoid a lapse in coverage if the borrower cures the default;

however, in the current environment, it is uncertain whether servicers will continue to do so.

If this were to occur, we could experience adverse impacts to our revenues, which could be material.

however, in the current environment, it remains uncertain whether servicers will continue to do so.

As set forth in the COVID Guidance, during the COVID-19 Crisis Period, if one or more servicers are unable to continue to remit premiums on loans in default, we, and other GSE-approved mortgage insurers, have agreed to notify the relevant GSE and give such GSE the opportunity to pay the premium to keep the coverage in force.

Notwithstanding our agreement with the GSEs, if there are wide-spread servicer liquidity issues and the GSEs choose not to remit premiums, we could experience adverse impacts to our liquidity, which could be material.

• Our investment portfolio (and, specifically, the valuations of investment assets we hold) has been, and may continue to be, adversely affected as a result of market deterioration caused by the COVID-19 pandemic and uncertainty regarding its outcome.

• The COVID-19 pandemic has caused significant volatility and disruption to the financial, capital and reinsurance markets, making access to such markets increasingly difficult.

To the extent that our current sources of income and capitalization are insufficient to meet GSE and state capital requirements or to fund our future operations, we would need to raise additional funds through future financing activities, including through the issuance of additional debt, equity, or a combination of both, reduce our RIF, including through additional reinsurance, or curtail our growth and reduce our expenses.

• The COVID-19 pandemic has caused significant volatility and disruption to the financial, capital and reinsurance markets, making access to such markets difficult.

To the extent that our current sources of income and capitalization are insufficient to meet GSE and state capital requirements (respectively, as defined therein) or to fund our future operations, we would need to raise additional funds through future financing activities, including through the issuance of additional debt, equity, or a combination of both, reduce our RIF, including through additional reinsurance, or curtail our growth and reduce our expenses.

We can give no assurance that any such efforts to raise capital, obtain additional reinsurance or otherwise reduce our RIF would be successful.

If we cannot obtain adequate capital, our business, results of operations and financial condition could be adversely affected.

For the reasons described above, it is uncertain at this time what impact COVID-19 will have on our revenues, losses, expenses, required assets under PMIERs, statutory and GAAP capital, and liquidity, and that impact may be material and adverse.

For the reasons described above, it is uncertain at this time what impact the COVID-19 crisis will ultimately have on our revenues, losses, expenses, required assets under PMIERs, statutory and GAAP capital, and liquidity, and that impact may be material and adverse over time.

The ultimate significance of COVID-19 on our business will depend on, among other things:

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the effects on the economy and the time it takes to stabilize;

the extent and duration of current and future social-distancing measures implemented by governmental authorities;

the extent and duration of current and future containment measures implemented by governmental authorities;

current and future governmental assistance programs;

and the long-term impact on the mortgage origination and mortgage insurance markets.

and the long-term impact on the mortgage origination and mortgage insurance

While at this time we cannot estimate the short or long-term impacts of COVID-19 on our business, the above and other factors, including those set forth under the heading "Risk Factors" contained in our 2019 10-K could have a material adverse effect on our business, liquidity, results of operations and financial condition.

Changes in the business practices of the GSEs, including a decision to decrease or discontinue the use of private MI, federal legislation that changes their charters or a restructuring of the GSEs could reduce our revenues or increase our losses.

The requirements and practices of the GSEs impact the operating results and financial performance of approved insurers, including NMIC.

Changes in the charters or business practices of Freddie Mac or Fannie Mae could materially reduce the number of mortgages they purchase that are insured by us and consequently diminish our franchise value.

The GSEs could be directed to make such changes by the FHFA, which was appointed as their conservator in September 2008 and has the authority to control and direct the operations of the GSEs.

With the GSEs in a prolonged conservatorship, there has been ongoing debate over the future role and purpose of the GSEs in the U.S.

housing market.

Congress may legislate, or the administration may implement through administrative reform, structural and other changes to the GSEs and the functioning of the secondary mortgage market.

Since 2011, there have been numerous legislative proposals intended to incrementally scale back the GSEs (such as a statutory mandate for the GSEs to transfer mortgage credit risk to the private sector) or to completely reform the housing finance system.

Congress, however, has not enacted any legislation to date.

The proposals vary with regard to the government's role in the housing market, and more specifically, with regard to the existence of an explicit or implicit government guarantee.

Recently, there has been increased focus on and discussion of administrative reform independent of legislative action.

On September 5, 2019, the Treasury Department released its Housing Reform Plan that included a compilation of legislative and administrative recommendations for reforms to achieve the goals of (i) ending the conservatorships of the GSEs, (ii) advancing competition in the housing finance market, (iii) setting regulations for the GSEs that provide for their safety and soundness and limit their risk to the financial stability of the United States, and (iv) providing proper compensation to the United States government for any explicit or implicit support it provides to the GSEs.

Additionally, the Director of the FHFA has publicly stated his priority for exiting the GSEs from conservatorship during his five-year term which began April 2019.

Between the Director of the FHFA and the Treasury Department, they possess significant capacity to effect administrative GSE reforms.

If any GSE reform is adopted, whether through legislation or administrative action, it could impact the current role of private mortgage insurance as credit enhancement, including its reduction or elimination, which would have an adverse effect on our revenue, operating results, prospects or financial condition.

As a result of these matters, it is uncertain what role private capital, including MI, will play in the domestic residential housing finance system in the future or the impact of any such changes on our business.

Any changes to the charters or statutory authorities of the GSEs would require Congressional action to implement.

Passage and timing of any comprehensive GSE reform or incremental change (legislative or administrative) is uncertain, making the actual impact on us and our industry difficult to predict.

Any such changes that come to pass could have a significant impact on our business.

In 2018, the FHFA issued a proposed rule to establish a new enterprise regulatory capital framework (ECF) for the GSEs, which included provisions governing the capital relief allowed to the GSEs for loans with private MI.

On May 20, 2020, the FHFA announced a re-proposal of the ECF rule for comment (2020 Proposal), which includes substantial revision to the 2018 proposed rule.

The 2020 Proposal is subject to review and comment by August 30, 2020, and any determination by the FHFA or outcome on a final rule is uncertain.

The 2020 version, in respect of the capital relief that would be allowed to the GSEs for loans with private MI, treats private MI more favorably than the 2018 proposal;

however, until any final rule is adopted, we cannot predict the impact on us or any future implications for PMIERs.

In recent years, the FHFA has set goals for the GSEs to transfer significant portions of the GSEs' mortgage credit risk to the private sector.

To date, several credit risk transfer products have been created under the program, including IMAGIN and EPMI and others discussed above in "Our NIW volumes could be adversely affected if lenders and investors select alternatives to private MI." To the extent these credit risk products evolve in a manner that displaces primary MI coverage, the amount of insurance we write may be reduced.

It is difficult to predict the impact of alternative credit risk transfer products, if any, that are developed to meet the goals established by the FHFA.

Exhibit Number

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333-191635), filed on October 9, 2013)

4.7 Indenture, dated as of June 19, 2020, among NMI Holdings, Inc., NMI Services, Inc.

as the Initial Guarantor, and the Bank of New York Mellon Trust Company, N.A.

as Trustee and Notes Collateral Agent (incorporated herein by reference to Exhibit 4.1 to our Form 8-K, filed on June 19, 2020)

10.1 ~ NMI Holdings Inc.

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(incorporated herein by reference to Exhibit 10.2 to our Form 8-K, filed on March 20, 2020)

10.19 Amendment No.

1, dated as of May 6, 2020, to the Company's Credit Agreement, dated as of May 24, 2018, by and among the Company, the lender parties thereto and JPMorgan Chase Bank, N.A.

as administrative agent (incorporated herein by reference to Exhibit 10.1 to our Form 8-K filed on May 6, 2020)

10.20 ~ NMI Holdings, Inc.

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10.39~ Form of NMI Holdings, Inc.

Amended and Restated 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement (Performance Based)

Amended and Restated 2014 Omnibus Incentive Plan Restricted Stock Unit Award Agreement (Performance Based) (incorporated herein by reference to Exhibit 10.38 to our Form 10-Q, filed on May 7, 2020)

21.1 Subsidiaries of NMI Holdings, Inc.

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Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101 The following financial information from NMI Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 formatted in XBRL (eXtensible Business Reporting Language):

(i) Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019;

(ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2020 and 2019;

(iii) Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2020 and 2019;

(iv) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019;

101 The following financial information from NMI Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 formatted in XBRL (eXtensible Business Reporting Language):

(i) Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019;

(ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2020 and 2019;

(iii) Condensed Consolidated Statements of Changes in Shareholders' Equity for the six months ended June 30, 2020 and 2019;

(iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019;

(v) Notes to Condensed Consolidated Financial Statements.

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NMI HOLDINGS, INC.

August 5, 2020

Chief Financial Officer and Duly Authorized Signatory

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors