What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2021-02-24 compared with 2020-02-14 · 214 added, 153 removed, 500 unchanged (42% of the section changed)

16 unchanged sentences

As of December 31, 2020, we had 262 full- and part-time employees.

We believe that our success in acquiring a large and diverse group of lender customers and growing a portfolio of high-quality IIF traces to our founding principles, whereby we aim to help qualified individuals achieve their homeownership goals, ensure that we remain a strong and credible counter-party, deliver a unique customer service experience, establish a differentiated risk management approach that emphasizes the individual underwriting review or validation of the vast majority of the loans we insure, utilize our proprietary Rate GPS SM pricing platform to dynamically evaluate risk and price our policies, and foster a culture of collaboration and excellence that helps us attract and retain experienced industry leaders.

We believe that our success in acquiring a large and diverse group of lender customers and growing a portfolio of high-quality IIF traces to our founding principles, whereby we aim to help qualified individuals achieve their homeownership goals, ensure that we remain a strong and credible counter-party, deliver a unique customer service experience, establish a differentiated risk management approach that emphasizes the individual underwriting review or validation of the vast majority of the loans we insure, utilize our proprietary Rate GPS ® pricing platform to dynamically evaluate risk and price our policies, and foster a culture of collaboration and excellence that helps us attract and retain experienced industry leaders.

Our strategy is to continue to build on our position in the private MI market, expand our customer base and grow our insured portfolio of high-quality residential loans by focusing on long-term customer relationships, disciplined and proactive risk selection and pricing, fair and transparent claims payment practices, responsive customer service, financial strength and profitability.

4 unchanged sentences

Federal Reserve, the U.S.

residential mortgage market is one of the largest in the world, with more than $11 trillion of mortgage debt outstanding as of December 31, 2019 , and includes both primary and secondary components.

residential mortgage market is one of the largest in the world, with approximately $11.5 trillion of mortgage debt outstanding as of December 31, 2020, and includes both primary and secondary components.

The primary market consists of lenders originating home loans to borrowers and includes loans made in connection with home purchases, which are referred to as purchase originations, and loans made to refinance existing mortgages, which are referred to as refinancing originations.

2 unchanged sentences

Private industry participants include national and regional mortgage banks, money center banks, mortgage brokers, community banks, builder-owned mortgage lenders, internet-sourced lenders, commercial, regional and investment banks, savings institutions, credit unions, real estate investment trusts (REITs) and other financial institutions.

Government participants include government agencies such as the government MIs ( e.g.

Government participants include

government agencies such as the government MIs ( e.g.

, FHA, USDA and VA) and Ginnie Mae, as well as government-sponsored enterprises, such as Fannie Mae and Freddie Mac.

24 unchanged sentences

Government MI share has since declined and is estimated to have been 56% in 2020.

Previous rate actions and product introductions continue to impact the government MIs' market share and by extension the private MI market.

Previous rate actions and product introductions continue to impact the government mortgage insurers' market share and by extension the private MI market.

Although there has been broad policy consensus toward the need for increasing private capital participation and decreasing government exposure to credit risk in the U.S.

19 unchanged sentences

Our maximum obligation with respect to a claim is generally determined by multiplying the selected coverage percentage by the loss amount on an insured loan.

The loss amount is defined in our master mortgage insurance policy (together with any related endorsements, the Master Policy) and includes unpaid loan principal, delinquent interest and certain expenses associated with the default and subsequent foreclosure or sale of the property securing the insured loan.

The loss amount is defined in the applicable master mortgage insurance policy (together with any related endorsements, a Master Policy) and includes, subject to certain limitations, unpaid loan principal, delinquent interest and certain expenses associated with the default and subsequent foreclosure or sale of the property securing the insured loan.

See " Business - Defaults and Claims;

Loss Mitigation - Defaults and Claims ," below for a description of our claim settlement processes.

The terms of our primary mortgage insurance coverage are governed by the Master Policy, which we issue to each approved lender with which we do business.

The terms of our primary mortgage insurance coverage are governed by the applicable Master Policy, which we issue to each approved lender with which we do business.

The Master Policy sets forth the terms and conditions of our MI coverage, including, among others, loan eligibility requirements, coverage terms, premium payment obligations, exclusions or reductions in coverage, rescission and rescission relief provisions, policy administration requirements, conditions precedent to payment of a claim and loss payment procedures.

We are currently implementing a new master mortgage insurance policy that will replace our existing Master Policy (the 2014 Master Policy) and provide terms of coverage for NIW associated with MI applications we receive on and after March 1, 2020 (the 2020 Master Policy, and together with the 2014 Master Policy, the Master Policies).

IIF written prior to March 1, 2020 will continue to be covered under our 2014 Master Policy.

Our Master Policies are publicly available on our website.

In March 2020, we introduced a new Master Policy (the 2020 Master Policy), which replaced our previous form (the 2014 Master Policy) for MI applications received on and after March 1, 2020.

We implemented the 2020 Master Policy, in part, to provide terms of coverage that conform to the requirements of the GSEs' 2018 revised Amended and Restated Rescission Relief Principles (RRPs), which contain rescission relief provisions that the GSEs require their approved mortgage insurers to include in their master policies.

In addition to incorporating substantive changes mandated by the RRPs, we developed the 2020 Master Policy to (i) present standard MI policy terms in a plain English format;

(ii) update premium, servicing, default notice and modification provisions to align with industry practice;

and (iii) clarify claim settlement and other terms.

The 2020 Master Policy governs the terms of coverage for NIW associated with applications received on or after March 1, 2020.

NIW associated with applications received before March 1, 2020 continues to be covered under the 2014 Master Policy.

The 2014 Master Policy and 2020 Master Policy (taken together, the Master Policies) are publicly available on our website.

Upon receipt of an insurable loan, we issue a certificate of insurance that extends coverage for such loan under the applicable Master Policy.

1 unchanged sentence

Our MI coverage attaches at a loan level and remains in effect whether a mortgage is retained by the originating lender or sold, assigned or otherwise transferred in the secondary market.

We consider the original lender or any subsequent owner of an insured loan to be our insured or, with respect to the GSEs, third-party beneficiaries under our Master Policies.

We generally consider the original lender or any subsequent servicer of an insured loan to be our insured or, with respect to subsequent owners and the GSEs, third-party beneficiaries under our Master Policies.

Premium payments for primary MI are the contractual responsibility of our insureds;

3 unchanged sentences

Our premiums are based on statutory rating rules and rates that we file with various state insurance departments.

We establish our premium rates based on models that assess risk across a spectrum of variables, including coverage percentages, LTV ratios, loan and property attributes, borrower debt-to-income (DTI) profiles, and market and macroeconomic conditions.

We have discretion under our rates and rating rules to flex our premium rates to a limited degree, and we may choose to do so for lenders or programs that meet certain criteria.

3 unchanged sentences

• single — entire premium is paid upfront at the time coverage is placed;

annual — premiums are paid in advance for a subsequent 12 month period over the life of a policy;

• annual — premiums are paid in advance for a subsequent twelve-month period over the life of a policy;

• monthly — premiums are paid in advance on a monthly basis over the life of the policy;

20 unchanged sentences

We offer outsourced loan review services to mortgage originators through NMIS.

In connection with these services, NMIS reviews loan data and documentation and assesses whether individual loan applications comply with the originator's and/or GSE underwriting guidelines.

In connection with these services, NMIS reviews loan data and documentation and assesses whether individual loan applications comply with the originator's and/or GSEs' underwriting guidelines.

We provide loan review services for mortgages that require MI and those that do not.

2 unchanged sentences

NMIS utilizes third-party service providers to conduct individual loan reviews .

NMIS third parties have represented and warranted to NMIS that they comply with the requirements of the federal Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) in all applicable jurisdictions.

See " Business - U.S.

Mortgage Insurance Regulation - Other U.S.

Regulation - SAFE Act ," below.

Since our inception, we have sought to establish customer relationships with a broad group of mortgage lenders.

8 unchanged sentences

however, they may also retain loans in their portfolios or sell portions of their production directly to the GSEs.

We further define customers as "centralized" or "decentralized" based on how they allocate their mortgage insurance purchasing decisions across each of their MI providers.

Centralized lenders make decisions about the placement and allocation of private mortgage insurance at a centralized, corporate level.

Decentralized lenders make decisions about the placement and allocation of private mortgage insurance at a loan level by loan production personnel, such as loan officers.

National Account lenders primarily utilize the centralized allocation model and Regional Account lenders primarily utilize the decentralized allocation model.

are, however, a number of National Account lenders who opt for a decentralized approach and a number of Regional Account lenders who opt for a centralized approach.

We further define customers as "centralized" or "decentralized" based on how they manage their mortgage insurance purchasing decisions across each of their MI providers.

Centralized lenders make decisions about the placement and choice of private mortgage insurance at a centralized, corporate level.

Decentralized lenders make decisions about the placement and choice of private mortgage insurance at a loan level by loan production personnel, such as loan officers, processors, and underwriters.

National Account lenders primarily utilize the centralized decision model and Regional Account lenders primarily utilize the decentralized decision model.

There are, however, a number of National Account lenders who opt for a decentralized approach and a number of Regional Account lenders who opt for a centralized approach.

The GSEs, as major purchasers of conventional mortgage loans in the U.S., are the primary beneficiaries of our mortgage insurance coverage.

5 unchanged sentences

Our sales force consists of qualified mortgage professionals that generally have well-established relationships with industry leading lenders and significant experience in both MI and mortgage lending.

We structure our sales force into National Accounts that focus on relationships with national or large regional lenders, and Regional Accounts that focus on relationships with small or regional lenders, such as community banks, credit unions, mortgage bankers and branches of National Accounts.

We also maintain a dedicated customer service team, which we refer to as the Solution Center and which offers support in loan submission and underwriting service, risk management and technology to support our sales efforts.

We structure our sales force into National Accounts that focus on relationships with national or large regional lenders, and Regional Accounts that focus on relationships with regional lenders, such as community banks, credit unions and mortgage bankers.

We also maintain a dedicated customer service team, which we refer to as the Solution Center, which offers support in loan submission and underwriting services as well as risk management and technology to support our sales efforts.

We also have a product development and marketing department that has primary responsibility for the creation, launch and management of our MI products and technological offerings, and coordination of our marketing strategy.

8 unchanged sentences

On receipt of a non-delegated submission, we review the information, documentation and data provided by the lender to underwrite the MI application.

We provide eligible customers who we have vetted and approved with the ability to directly underwrite our policies and bind our coverage based on pre-established eligibility rules, approved underwriting guidelines and according to the terms of our Master Policy.

• Delegated :

We provide eligible customers who have been vetted and approved, and comply with a defined set of delegated underwriting program requirements with the ability to directly underwrite our policies and bind our coverage based on pre-established eligibility rules, approved underwriting guidelines and according to the terms of the Master Policy.

We offer delegated underwriting to lenders that have a track record of originating quality mortgage loans and meet our delegated authority approval requirements.

5 unchanged sentences

We employ a team of experienced underwriters who review and evaluate our non-delegated loan submissions.

Our underwriters are located remotely across the continental United States, facilitating our ability to service our customers nationwide across the different time zones.

We also engage third-party underwriting service providers (USPs) who provide us with incremental

underwriting capacity.

Our underwriters are located remotely, facilitating our ability to service our customers nationwide across the different time zones.

We also engage third-party underwriting service providers (USPs) who provide us with incremental underwriting capacity.

We train and require our USPs to follow the same processes and underwriting guidelines that our own employees follow when rendering insurance decisions.

11 unchanged sentences

We offer post-closing underwriting reviews, which we refer to as "independent validations," for both non-delegated and delegated loans, as described below.

Upon satisfactory completion of an independent validation, which involves reviewing certain post-close documentation to confirm our original assessment of non-delegated loans and performing a comprehensive full-file review for delegated loans, we agree on an accelerated basis that we will not rescind coverage under certain circumstances.

We believe our Master Policies set forth clear and straightforward terms regarding our rescission rights, including limitations on our right to rescind coverage when certain conditions are met, which we refer to as "rescission relief." National MI’s rescission relief program includes early and payment-based rescission relief options for both delegated and non-delegated loans, as described below.

In September 2018, the GSEs issued revised Amended and Restated GSE Rescission Relief Principles (RRPs), the rescission relief provisions that are required to, or may, be included in the master policies of GSE-approved mortgage insurers.

We are implementing the 2020 Master Policy, in part, to provide terms of coverage that conform to the requirements of the revised RRPs for MI applications we receive on and after March 1, 2020.

Our Master Policies generally provide us the ability to rescind coverage of a loan if there are material misrepresentations, significant underwriting defects and/or fraud in the origination process.

Upon satisfactory completion of an independent validation, which involves reviewing certain post-close documentation to confirm our original assessment of non-delegated loans and performing a comprehensive full-file review for delegated loans, we agree – on an accelerated basis – that we will not rescind coverage under most circumstances.

We refer to such accelerated agreement as "early rescission relief."

Our Master Policies generally provide us with the ability to rescind coverage of a loan if there are material misrepresentations, significant underwriting defects and/or fraud later identified in the origination process of such loan.

When we rescind coverage of a loan, we cancel the certificate as of the original certificate effective date and return all premiums received related to the impacted loan.

To qualify for the earliest rescission relief we can provide on a loan, we are required to conduct an independent validation of such loan.

Lenders have the ability to select whether or not to have insured loans subjected to our post-close independent validation processes.

Subject to our validation of coverage of an insured loan, we stipulate in our Master Policies that we will not rescind coverage of such loan for certain material misrepresentations or underwriting defects, provided the terms of the applicable Master Policy are met.

In our 2014 Master Policy, a loan may be eligible for early rescission relief following an independent validation, if the borrower makes the first 12 monthly mortgage payments on time.

Under the 2020 Master Policy, we are required to grant rescission relief following our satisfactory completion of an independent validation, rather than waiting for the borrower to timely make the first 12 payments.

In addition, the 2020 Master Policy provides for a "closing document exception", which permits eligible non-delegated lenders to obtain early rescission relief without post-close independent validations of qualifying loans, if the borrower timely makes the first 12 mortgage payments.

Rescission relief generally limits our ability to pursue rescission rights, except under certain life-of-coverage exclusions, such as fraud and pattern activity.

Rescission relief also limits our ability to initiate certain investigations or to request information from our insureds.

In September 2018, the GSEs issued revised RRPs that outline the rescission relief provisions that are generally required to be included in the master policies of GSE-approved mortgage insurers.

Under our 2014 Master Policy, a loan may be eligible for early rescission relief if the borrower has made the first 12 mortgage payments on time and we have satisfactorily completed our independent validation.

Under the 2020 Master Policy, which incorporates the RRPs, a loan may be eligible for early rescission relief following our satisfactory completion of an independent validation, with no set requirement for a minimum number of timely mortgage payments by the borrower.

Insured loans that do not qualify for early rescission relief may still achieve rescission relief based on a borrower's payment history at the 36th or 60th month, provided the conditions in the applicable Master Policy are satisfied.

Under both of our Master Policies, if a lender has elected not to pursue independent validation and accelerated rescission relief, the loan is still eligible for rescission relief if it is current after 36 months and the borrower has had no more than two 30-day delinquencies and no 60-day or greater delinquencies during such 36-month period.

Under the Master Policies, if a lender has elected not to pursue independent validation and early rescission relief, a loan is still eligible for rescission relief if it is current after 36 months and the borrower has had no more than two 30-day delinquencies and no 60-day or greater delinquencies during such 36-month period.

The 2020 Master Policy further provides for a sunset of our rescission rights at the 60-month anniversary of the inception of coverage of an insured loan, provided such loan is then current or subsequently cures.

Our Master Policies include additional limitations on our ability to initiate certain investigations or to request information from our insureds after a loan has achieved rescission relief.

On the other hand, rescission relief does not limit our rights and remedies ( i.e., we retain our rescission rights) under certain life-of-coverage exclusions, including for fraud and pattern activity;

however, the evidentiary standard we must meet to pursue these rights under the 2020 Master Policy is more stringent than in the current Master Policy.

Non-delegated lenders who desire our earliest rescission relief are required to submit additional loan documentation post-closing that allows us to independently validate such loans, including a loan's closing disclosures, note, executed mortgage and title insurance commitment.

Loans from non-delegated lenders that do not achieve early rescission relief are eligible for 36-month or 60-month rescission relief in accordance with the terms of the applicable Master Policy.

Delegated lenders who desire our earliest rescission relief are required to submit a full file (which contains all the underwriting information and documentation otherwise required by us as part of a non-delegated review and the above-referenced post-closing documentation) after a loan's coverage effective date.

Lenders have the ability to select whether or not to pursue early rescission relief and subject their insured loans to our post-close independent validation processes.

Non-delegated lenders who pursue independent validation are required to submit additional loan documentation post-closing that allows us to independently validate such loans, including a loan's closing disclosures, note, executed mortgage and title insurance commitment.

Our 2020 Master Policy provides for a "closing document exception," which permits eligible non-delegated lenders to obtain early rescission relief without post-close independent validations of qualifying loans, if the borrower timely makes the first 12 mortgage payments.

Loans from non-delegated lenders who do not pursue or submit the documentation necessary for us to complete our independent validation, and are not eligible for a closing document exception remain eligible for 36 or 60-month rescission relief in accordance with the terms of the applicable Master Policy.

Delegated lenders who pursue early rescission relief and subject their insured loans to our post-close independent validation process are required to submit a full file (which contains all the underwriting information and documentation otherwise required by us for a non-delegated underwrite and the above-referenced post-closing documentation) after a loan's coverage effective date.

We refer to our independent validation of delegated loans as our "Delegated Assurance Review" or "DAR" process.

Through DAR, we assess and validate the MI underwriting process and decisions made by our delegated customers on an individual loan level basis.

Loans from delegated lenders who choose not to participate in our DAR process are eligible for 36 or 60-month rescission relief in accordance with the terms of the applicable Master Policy.

All loans, whether included in our post-close validation processes or not, are eligible for review under our quality control process, and such QC reviews qualify as independent validations for such loans, making them eligible for early rescission relief.

Loans from delegated lenders who do not pursue or submit the documentation necessary for us to complete our DAR process remain eligible for 36 or 60-month rescission relief in accordance with the terms of the applicable Master Policy.

All loans, whether included in our post-close validation processes or not, are eligible for review under our quality control (QC) process, and such QC reviews qualify as independent validations for such loans, making them eligible for early rescission relief.

We engage USPs to perform the majority of our delegated and non-delegated independent validation work.

4 unchanged sentences

We introduced Rate GPS in June 2018 to replace our previous rate card pricing system.

While we expect most of our new business will be priced through Rate GPS, we also continue to offer a rate card pricing option to a limited number of lender customers who require a rate card for business process reasons.

While most of our new business is priced through Rate GPS, we continue to offer a rate card pricing option to a limited number of lender customers who require a rate card for business process reasons.

Our pricing approach targets through-the-cycle returns that exceed our cost of capital.

We believe the introduction and utilization of Rate GPS provides us with a more granular and analytical approach to evaluating and pricing risk, and that this approach enhances our ability to continue building a high-quality mortgage insurance portfolio and delivering attractive risk-adjusted returns.

We believe that Rate GPS provides us with a more granular and analytical approach to evaluating and pricing risk, and that it enhances our ability to continue building a high-quality mortgage insurance portfolio and delivering attractive risk-adjusted returns.

Policy Servicing

3 unchanged sentences

A residential mortgage loan servicer handles the day-to-day tasks of managing a lender's loan portfolio, including processing borrowers' loan payments, paying MI premiums to the mortgage insurer, responding to borrower inquiries, keeping track of principal and interest payments, managing escrow accounts and initiating loss mitigation and foreclosure activities.

Our servicing specialists are assigned to our servicers to assist with day-to-day transactions and monitoring of their insured loans.

We assign servicing specialists to our servicers to assist with day-to-day transactions and monitoring of insured loans.

Over time, a servicer may change on an insured loan if the related servicing rights are transferred to a different servicer during the life of such loan.

Servicing rights and responsibilities related to an insured loan may be sold, assigned or transferred, subject to all of the terms and conditions of the applicable Master Policy and to all defenses we may have had prior to any such sale, assignment or transfer.

Under the Master Policy, if the servicing rights for a loan are sold, assigned or transferred to a servicer we approve, coverage of the loan will continue.

We have the right under our Master Policy to revoke approval of a servicer;

Servicing rights and responsibilities related to an insured loan may be sold, assigned or transferred, subject to all of the terms and conditions of the applicable Master Policy.

Under the Master Policies, if the servicing rights for an insured loan are sold, assigned or transferred to a servicer we approve, coverage of the loan will continue.

We have the right under our Master Policies to revoke approval of a servicer;

if the impacted insureds wish to maintain coverage of insured loans serviced by the disapproved provider, such insureds must find another servicer that we approve.

4 unchanged sentences

We are also integrated directly with certain lender customers who manage their own servicing systems.

parties' servicing platforms are used by the majority of our larger servicing accounts to exchange billing, payment and certificate level information on a daily or monthly basis.

These parties' servicing platforms are used by the majority of our larger servicing accounts to exchange billing, payment and certificate level information on a daily or monthly basis.

Servicers may also use our own external facing servicing website to process their servicing transactions.

3 unchanged sentences

The MI claim cycle begins with the receipt of a Notice of Default (NOD) for an insured loan from a loan servicer.

Generally, our Master Policies require our insureds to notify us after a loan is two payments in default.

Upon receipt of a 60-day NOD, we establish claim reserves.

Generally, our Master Policies require our insureds to notify us after a loan is two payments in arrears.

We include a loan in our default population and establish claim 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.

The incidence of default is affected by a variety of factors, many of which are unforeseen, including a borrowers' loss of income, unemployment, divorce, illness or death.

4 unchanged sentences

If a default is not cured and we receive a claim, we refund any unearned premium collected between the date of default and the date of the claim payment.

Our claim exposure includes, subject to certain limitations, the covered portion of unpaid loan principal, delinquent interest (subject to a three-year limit) and certain expenses incurred in connection with the default and subsequent foreclosure or sale of the property securing the insured loan.

Under the terms of our Master Policies, our insureds are generally required to file claims within 60 days of acquiring title to a property securing an insured loan (typically through foreclosure) or when there has been an approved short sale.

In the years following the most recent financial crisis, foreclosure time-lines and the average time from initial default by a borrower to MI claim submission have extended due to legislation and GSE programs requiring mortgage servicers to mitigate losses by offering forbearance and loan modifications prior to pursuing foreclosure on delinquent loans.

We have rights under our Master Policies to deny a claim under certain conditions, such as when a loan servicer does not produce documents necessary to perfect a claim or when the reason for our underlying loss associated with a claim is not covered by our Master Policies.

In the years following the 2008 financial crisis, foreclosure time-lines and the average time from initial default by a borrower to MI claim submission extended due to legislation and GSE programs requiring mortgage servicers to mitigate losses by offering forbearance and loan modifications prior to pursuing foreclosure on delinquent loans.

Such timelines have been further extended in connection with legislation and GSE action following the onset of the COVID pandemic to aid distressed borrowers.

On March 27, 2020, the U.S.

Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

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 on such mortgages through at least March 31, 2021 and may be further extended.

In addition, the CARES Act provides for payment forbearance to borrowers facing hardship caused by COVID-19 for up to 360 days.

Consistent with the CARES Act, the GSEs permit payment forbearance for borrowers facing financial hardship from COVID-19 for a cumulative 12-month term, and for certain borrowers, if their hardships have not been resolved at the end of the 12-month term, they may extend their forbearance terms for up to three additional months.

The GSEs may extend this period further in the future.

We have rights under our Master Policies to deny a claim under certain conditions, such as when a loan servicer does not produce documents necessary to perfect a claim or when the reason for the underlying loss associated with a claim is not covered by our Master Policies.

When we approve a claim, our Master Policies give us the option to pay (i) the coverage percentage specified for a loan, with the insured retaining title to the underlying property and receiving all proceeds from an eventual sale of the property (the percentage option), (ii) the actual loss incurred by the insured upon sale of the property to a third party, if less than the percentage option, or (iii) 100% of the insured's claim amount ( i.e.

1 unchanged sentence

If we elect to receive title to a property, we will market and sell the acquired property and retain all proceeds.

We have opted to settle the significant majority of our claims paid to date through the percentage option.

Loss Mitigation

Before paying a claim, we review loan and servicing files to determine the appropriateness of the claim submission and claim amount and to ensure we only pay for expenses covered under our Master Policy.

Our Master Policy provides that we can reduce or deny a claim if the servicer did not comply with its obligations required by our policy, including the requirement to pursue reasonable loss mitigation efforts.

Before paying a claim, we review loan and servicing files to determine the appropriateness of the claim submission and claim amount, and to ensure we only pay for expenses covered under the applicable Master Policy.

We periodically receive claims submissions that include costs and expenses not covered by our Master Policies, such as mortgage insurance premiums, hazard insurance premiums for periods after the claim date and losses resulting from property damage that has not been repaired, and deny coverage for such items.

Our Master Policies also provide us with the ability to reduce or deny a claim if the servicer did not comply with its obligations, including a requirement to pursue reasonable loss mitigation efforts.

Such efforts may include pursuing foreclosure or bankruptcy relief in a timely and diligent manner.

We deem a reduction in the claim amount to be a "curtailment." We may also receive claims submissions that include costs and expenses not covered by our Master Policy, such as mortgage insurance premiums, hazard insurance premiums for periods after the claim date and losses resulting from property damage that has not been repaired.

Under our Master Policy, insureds, typically through their servicers, must obtain prior approval from us before executing a deed-in-lieu of foreclosure, short sale or loan modification.

We deem a reduction in the claim amount to be a "curtailment."

Under our Master Policies, insureds, typically through their servicers, must obtain prior approval from us before executing a deed-in-lieu of foreclosure, short sale or loan modification.

Our right to pre-approve these transactions provides us the ability to mitigate actual or potential loss on an insured loan by ensuring that properties are being marketed and sold at reasonable values and that, in appropriate cases, borrowers are offered modified loan terms that are structured to help them sustain their mortgage payments.

11 unchanged sentences

Excess-of-loss reinsurance

NMIC entered into excess-of-loss reinsurance agreements with Oaktown Re Ltd., Oaktown Re II Ltd.

and Oaktown Re III Ltd.

(special purpose reinsurance entities collectively referred to as the Oaktown Re Vehicles) effective May 2, 2017, July 25, 2018 and July 30, 2019, respectively.

NMIC entered into excess-of-loss reinsurance agreements with Oaktown Re Ltd., Oaktown Re II Ltd., Oaktown Re III Ltd., Oaktown Re IV Ltd., and Oaktown Re V Ltd.

(special purpose reinsurance entities collectively referred to as the Oaktown Re Vehicles) effective May 2, 2017, July 25, 2018, July 30, 2019, July 30, 2020 and October 29, 2020 respectively.

Each agreement provides NMIC with aggregate excess-of-loss reinsurance coverage on a defined portfolio of mortgage insurance policies written during a discrete period.

1 unchanged sentence

NMIC then retains losses in excess of the respective reinsurance coverage amounts.

The respective reinsurance coverage amounts provided by the Oaktown Re Vehicles decrease from the inception of each agreement over a 10-year period as the underlying insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled.

The respective outstanding reinsurance coverage amounts stop amortizing if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered.

Under the terms of each excess-of-loss reinsurance agreement, the Oaktown Re Vehicles are required to fully collateralize their outstanding reinsurance coverage amount to NMIC with funds deposited into segregated reinsurance trusts.

2 unchanged sentences

Each Oaktown Re Vehicle financed its respective collateral requirement through the issuance of mortgage insurance-linked notes to unaffiliated investors.

Such insurance-linked notes mature 10 years from the inception date of each reinsurance agreement.

We refer to NMIC's reinsurance agreements with and the insurance-linked note issuances by Oaktown Re Ltd., Oaktown Re II, Ltd.

and Oaktown Re III, Ltd.

individually as the 2017 ILN Transaction, 2018 ILN Transaction and 2019 ILN Transaction, and collectively as the ILN Transactions.

Such insurance-linked notes mature ten years from the inception date of each reinsurance agreement.

We refer to NMIC's reinsurance agreements with and the insurance-linked note issuances by Oaktown Re Ltd., Oaktown Re II Ltd., Oaktown Re III Ltd., Oaktown Re IV Ltd.

and Oaktown Re V Ltd., individually as the 2017 ILN Transaction, 2018 ILN Transaction, 2019 ILN Transaction, 2020-1 ILN Transaction and 2020-2 ILN Transaction, and collectively as the ILN Transactions.

The respective reinsurance coverage amounts provided by the Oaktown Re Vehicles decrease from the inception of each agreement over a ten-year period as the underlying insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled.

As the reinsurance coverage decreases, a prescribed amount of collateral held in trust by the Oaktown Re Vehicles is distributed to ILN Transaction noteholders as amortization of the outstanding insurance-linked note principal balances.

The outstanding reinsurance coverage amounts stop amortizing, and the collateral distribution to ILN Transaction noteholders and amortization of insurance-linked note principal is suspended if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered (each, a Lock-Out Event).

Effective June 25, 2020, a Lock-Out Event was deemed to have occurred for each of the 2017, 2018 and 2019 ILN Transactions and the amortization of reinsurance coverage, and distribution of collateral assets and amortization of insurance-linked notes was suspended for each ILN Transaction.

The amortization of reinsurance coverage, distribution of collateral assets and amortization of insurance-linked notes will remain suspended for the duration of the Lock-Out Event for each ILN Transaction, and during such period assets will be preserved in the applicable reinsurance trust account to collateralize the excess-of-loss reinsurance coverage provided to NMIC.

The following table presents the inception date, covered production period, initial reinsurance coverage amount and initial and first layer retained aggregate loss under each of the ILN Transactions.

( $ values in thousands)

Inception Date

Covered Production

Initial Reinsurance Coverage

Initial First Layer Retained Loss

2017 ILN Transaction

1/1/2013 - 12/31/2016

2018 ILN Transaction

July 25, 2018

1/1/2017 - 5/31/2018

2019 ILN Transaction

July 30, 2019

Inception Date Covered Production Initial Reinsurance Coverage Initial First Layer Retained Loss (1)

2017 ILN Transaction May 2, 2017 1/1/2013 - 12/31/2016 $211,320 $126,793

2018 ILN Transaction July 25, 2018 1/1/2017 - 5/31/2018 264,545 125,312

2019 ILN Transaction July 30, 2019 6/1/2018 - 6/30/2019 326,905 123,424

2020-1 ILN Transaction July 30, 2020 7/1/2019 - 3/31/2020 322,076 169,514

2020-2 ILN Transaction October 29, 2020 4/1/2020 - 9/30/2020 (2)

242,351 121,777

(1) NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure and cedes reserves for incurred claims and claims expenses to each applicable ILN Transaction and recognizes a reinsurance recoverable if such incurred claims and claims expenses exceed its current first layer retained loss.

(2) Less than 1% of the production covered by the 2020-2 ILN Transaction has coverage reporting dates between July 1, 2019 and March 31, 2020.

NMIC holds optional termination rights under each ILN Transaction, including, among others, an optional call feature which provides NMIC the discretion to terminate the transaction on or after a prescribed date, and a clean-up call if the outstanding reinsurance coverage amount amortizes to 10% or less of the reinsurance coverage amount at inception or if NMIC reasonably determines that changes to GSE or rating agency asset requirements would cause a material and adverse effect on the capital treatment afforded to NMIC under a given agreement.

In addition, there are certain events that trigger mandatory termination of an agreement, including NMIC's failure to pay premiums or consent to reductions in a trust account to make principal payments to noteholders, among others.

Under the terms of the 2018 ILN Transaction and the 2019 ILN Transaction, we are required to maintain a certain level of restricted funds in premium deposit accounts with Bank of New York Mellon until the respective notes have been redeemed in full.

We are not required to deposit additional funds into the premium deposit accounts in the future and the restricted balances will decrease over time as the outstanding principal balances of the respective insurance-linked notes decline.

Under the terms of the 2018, 2019, 2020-1 and 2020-2 ILN Transactions, we are required to maintain a certain level of restricted funds in premium deposit accounts with Bank of New York Mellon until the respective notes have been redeemed in full.

We are not required to deposit additional funds into the premium deposit accounts in the future for these transactions and the restricted balances will decrease over time as the outstanding principal balances of the respective insurance-linked notes decline.

Quota share reinsurance

3 unchanged sentences

Certain quota share agreements include profit commissions that are earned based on loss performance and serve to reduce ceded premiums.

NMIC entered into two quota share reinsurance treaties each with a syndicate of third party reinsurers, effective September 1, 2016 (the 2016 QSR Transaction) and January 1, 2018 (the 2018 QSR Transaction) collectively referred to as the QSR Transactions.

NMIC entered into three quota share reinsurance treaties each with a syndicate of third-party reinsurers, effective September 1, 2016 (the 2016 QSR Transaction), January 1, 2018 (the 2018 QSR Transaction) and April 1, 2020 (the 2020 QSR Transaction), which we collectively refer to as the QSR Transactions.

Under the terms of the 2016 QSR Transaction, NMIC cedes premiums written related to 25% of the risk on eligible primary policies written for all periods through December 31, 2017 and 100% of the risk under our pool agreement with Fannie Mae, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 60% that varies directly and inversely with ceded claims.

Under the terms of the 2018 QSR Transaction, NMIC cedes premiums earned related to 25% of the risk on eligible policies written in 2018 and 20% of the risk on eligible policies written in 2019, in exchange for reimbursement of ceded claims and claim expenses on covered policies, a 20% ceding commission, and a profit commission of up to 61% that varies directly and inversely with ceded claims.

Under the terms of the QSR Transactions, NMIC may elect to selectively terminate its engagement with individual reinsurers on a run-off basis ( i.e., reinsurers continue providing coverage on all risk ceded prior to the termination date, with no new cessions going forward) or cut-off basis ( i.e., the reinsurance arrangement is completely terminated with NMIC recapturing all previously ceded risk) under certain circumstances.

Under the terms of the 2020 QSR Transaction, NMIC cedes premiums earned related to 21% of the risk on eligible policies written from April 1, 2020 through December 31, 2020, in exchange for reimbursement of ceded claims and claim expenses on covered po licies, a 20% ceding commission, and a profit commission of up to 50% that varies directly and inversely with ceded claims.

NMIC may elect to terminate its engagement with individual reinsurers on a run-off basis ( i.e., reinsurers continue providing coverage on all risk ceded prior to the termination date, with no new cessions going forward) or cut-off basis ( i.e., the reinsurance arrangement is completely terminated with NMIC recapturing all previously ceded risk) under certain circumstances.

Such selective termination rights arise when, among other reasons, a reinsurer experiences a deterioration in its capital position below a prescribed threshold and/or a reinsurer breaches (and fails to cure) its collateral posting obligations under the relevant agreement.

5 unchanged sentences

We have established enterprise wide policies, procedures and processes to allow us to identify, assess, monitor and manage credit market and operational risks in our business, as well as other risks discussed below in Item 1A, " Risk Factors ." Management of these risks is an interdepartmental endeavor including specific operational responsibilities and ongoing senior management and compliance personnel oversight.

The Risk Committee of our Board of Directors (Board) has responsibility for oversight and review of our enterprise risk management approach and is supported by a management enterprise risk committee comprised of senior members of our management team and led by our Chief Risk Officer.

Our internal audit function, which reports to the Audit Committee of our Board, provides independent ongoing assessments of our management of certain enterprise risks and reports its findings to our Board's Risk Committee.

26 unchanged sentences

We utilize and develop technology that enhances our current operating capabilities and supports future growth, while allowing us to realize current efficiencies.

We engage contractors to assist with the development and maintenance of certain areas of our IT architecture as a means to manage our technology costs and selectively draw in relevant expertise for particular projects.

Effective March 31, 2020, we entered into an IT services agreement with Tata Consultancy Services (TCS).

Under the agreement, TCS is providing IT services over a seven-year period across such functions as application development and support, infrastructure support, (service desk, end user computing and engineering services), and information security.

We expect the engagement with TCS will further our ability to provide innovative IT solutions for our internal and external constituents, while realizing cost efficiencies by leveraging TCS's global platform.

In connection with the agreement, a majority of our IT employees at that time transitioned to TCS.

Investment Portfolio

1 unchanged sentence

We aim to achieve diversification as to type, quality, maturity, industry and issuer.

At December 31, 2019 , our investment portfolio was comprised of fixed maturity securities including:

At December 31, 2020, our investment portfolio was comprised entirely of investment grade fixed maturity securities, including U.S.

Treasury securities and obligations of U.S.

government agencies, municipal debt securities, corporate debt securities, and asset-backed securities.

We also held other short-term investments (such as commercial paper).

We have adopted an investment policy that defines, among other things, eligible and ineligible investments, concentration limits for asset types, industry sectors, single issuers, and certain credit ratings, and benchmarks for asset duration.

We also held short-term investments, such as commercial paper.

Our investments are rated by one or more nationally recognized statistical rating organizations.

We review our investment policies and strategies on a consistent basis, and they are subject to change depending upon regulatory, economic and market conditions and our existing or anticipated financial condition and operating requirements, including our tax position.

Our investment policies and strategies are subject to change depending upon regulatory, economic and market conditions, and our existing or anticipated financial condition and operating requirements.

We engage a third-party investment manager, Wells Capital Management, Inc., to assist with day-to-day management of our portfolio and implementation of our investment policy.

As of December 31, 2019 , we had 321 full- and part-time employees.

None of our employees are party to a collective bargaining agreement.

We utilize a third-party professional employer organization to manage our payroll administration and related compliance requirements.

Human Capital Management

As of December 31, 2020, we had 262 full- and part-time employees, including 113 who typically work at our corporate headquarters in Emeryville, CA and 149 who typically work from home in locations across the country.

We also engage third-party vendors to provide IT, underwriting and other support services.

Our ability to operate efficiently and profitably, to offer products and services that meet the expectations of our customers, and to maintain an effective risk management framework is highly dependent on the competence and integrity of our employees, as well as the employees of the third-party service providers, vendors and others on which we rely.

As such, we prioritize human capital management with the goal to attract, retain and develop a high-quality, diverse employee base.

competitive salaries and benefits, and have sought to build a performance-driven corporate culture that fosters employee engagement, collaboration and innovation.

We have developed a broad framework to organize and support our cultural goals, which we refer to as People, Profit, Customer and Community or PPCC.

Our PPCC framework is designed to create an employee-driven, collaborative and productive work environment, that emphasizes balance between organizational, community and personal goals.

We value diversity as a company, and believe that diverse perspectives promote innovation and are crucial to the long-term success of our business.

We are committed to supporting diversity, equity and inclusion in our workplace, and have aimed to create an environment that welcomes and supports differences and encourages input from all.

We have and will continue to take action to (i) enhance cultural awareness throughout our organization by creating substantive learning opportunities for all employees;

(ii) improve our executive pipeline by creating and supporting programs and policies that foster leadership development;

(iii) increase the representation of diverse candidates on our Board and amongst our management team;

(iv) address potential biases during our hiring, promotion and evaluation processes;

and (vii) engage in initiatives that foster economic mobility, community development and financial education.

Our employees bring a rich and diverse mosaic of cultural and lifestyle perspectives, and we encourage them to actively invest in our community and contribute to a global sustainable environment.

National MI was recognized as a Fortune Great Place to Work ® for the fifth consecutive year in 2020.

Available Information

34 unchanged sentences

In January 2013, the GSEs approved NMIC as a qualified mortgage insurer (as defined in the PMIERs, an approved insurer ).

( Italicized terms have the same meaning that such terms have in the PMIERs.) As an approved insurer , NMIC is subject to ongoing compliance with the PMIERs.

The PMIERs establish operational, business, remedial and financial requirements applicable to approved insurers .

( Italicized terms have the same meaning that such terms have in the PMIERs.) As an approved insurer , NMIC is subject to ongoing compliance with the PMIERs.The PMIERs establish operational, business, remedial and financial requirements applicable to approved insurers .

The GSEs have significant discretion under the PMIERs as well as a broad range of consent rights and notice requirements with respect to various actions of an approved insurer.

5 unchanged sentences

In general, higher quality loans carry lower charges.

Under the PMIERs, approved insurers must maintain available assets that equal or exceed minimum required assets , which

is an amount equal to the greater of (i) $400 million or (ii) a total risk-based required asset amount .

Under the PMIERs, approved insurers must maintain available assets that equal or exceed minimum required assets ,

which is an amount equal to the greater of (i) $400 million or (ii) a total risk-based required asset amount .

The risk-based required asset amount is a function of the risk profile of an approved insurer's RIF, assessed on a loan-by-loan basis and considered against certain risk-based factors derived from tables set out in the PMIERs to gross RIF, which is then adjusted on an aggregate basis for reinsurance transactions approved by the GSEs, such as with respect to our ILN Transactions and QSR Transactions.

The risk-based required asset amount for performing, primary insurance is subject to a floor of 5.6% of performing primary adjusted RIF , and the risk-based required asset amount for pool insurance considers both factors in the PMIERs tables and the net remaining stop loss for each pool insurance policy.

On September 27, 2018, the GSEs published revised PMIERs that took effect and became applicable to NMIC on March 31, 2019 (the Revised PMIERs).

The rules governing minimum required assets and calculation of available assets and the risk-based required asset amount remained largely the same under the Revised PMIERs, with a few differences in the elements that may ( e.g.

, certain premiums receivable) and may not ( e.g.

, funds withheld for the benefit of a reinsurer ) be included in the calculation of available assets .

The Revised PMIERs also introduced a comprehensive reinsurance counter-party grading framework, which includes a modest haircut (based on the credit rating of the reinsurer ) to the capital credit available to an approved insurer for any un-collateralized reinsurance coverage.

The PMIERs include a comprehensive reinsurance counter-party grading framework, which includes a modest haircut (based on the credit rating of the reinsurer ) to the capital credit available to an approved insurer for any un-collateralized reinsurance coverage.

On June 30, 2020, the GSEs issued PMIERs Guidance 2020-01, which the GSEs subsequently amended and restated on September 29, 2020 (2020 PMIERs Guidance).

Among other things, the 2020 PMIERs Guidance:

(i) temporarily amended PMIERs, effective as of June 30, 2020, to recognize the COVID-19 pandemic as a nationwide major disaster and to reduce the risk-based required asset amount factor under PMIERS for certain COVID-19 defaulted loans (the COVID Guidance) and (ii) permanently amended PMIERs, effective December 31, 2020, to clarify delinquency reporting requirements for non-performing loans under PMIERs.

In the 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 April 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 amount 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 the risk-based required asset haircut for the duration of the forbearance period and subsequent repayment plan or trial modification period.

In addition, 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 approved insurers , have agreed to notify the relevant GSE and give such GSE the opportunity to pay the premium to keep the coverage in force.

By April 15th of each year, NMIC must certify it met all PMIERs requirements as of December 31st of the prior year.

47 unchanged sentences

Under Wisconsin law, our insurance subsidiaries may pay "ordinary" stockholder dividends with 30 days' prior notice to the Wisconsin OCI.

Ordinary dividends are defined as payments or distributions to stockholders in any 12-month period that do not exceed the lesser of (i) 10% of statutory policyholders' surplus as of the preceding calendar year end or (ii) adjusted statutory net income.

Ordinary dividends are defined as payments or distributions to stockholders in any twelve-month period that do not exceed the lesser of (i) 10% of statutory policyholders' surplus as of the preceding calendar year end or (ii) adjusted statutory net income.

Adjusted statutory net income is defined for this purpose to be the greater of the following:

6 unchanged sentences

For example, California and New York prohibit mortgage insurers licensed in such states from declaring dividends except from undivided profits remaining above the aggregate of their paid-in capital, paid-in surplus and contingency reserves.

Florida requires mortgage insurers to hold capital and surplus not less than the lesser of (i) 10% of its total liabilities, or (ii) $100 million.

In addition, Florida requires mortgage insurers to hold capital and surplus not less than the lesser of (i) 10% of its total liabilities, or (ii) $100 million.

It is possible that Wisconsin, or other states, will adopt revised statutory provisions or interpretations of existing statutory provisions that will be more or less restrictive than those described above or will otherwise take actions that may further restrict the ability of our insurance subsidiaries to pay dividends or make distributions or returns of capital.

37 unchanged sentences

housing finance system.

However, to date there has been a lack of consensus with regard to the specific changes necessary to return to a larger role for private capital and what size the government's role should be.

However, to date there has been a lack of consensus on the specific changes necessary to return to a larger role for private capital and what size the government's role should be.

On September 6, 2008, the FHFA used its authority to place the GSEs into conservatorship.

As the GSEs' conservator, the FHFA has the authority to control and direct the GSEs' operations, and the FHFA's policy objectives can result in changes to the GSEs' requirements and practices.

While in conservatorship, each GSE has been subject to the terms of Senior Preferred Stock Purchase Agreements with the Treasury Department (PSPAs).

Pursuant to the PSPAs, the Treasury Department committed to invest in the GSEs to the extent required for each to maintain a positive net worth.

In exchange for its investment, the Treasury Department received shares of the GSEs' senior preferred stock and warrants to purchase 79.9% of the GSEs' common stock.

The PSPAs have also historically required the GSEs to, among other things, make quarterly dividend payments to the Treasury Department, and also provide the Treasury Department with a liquidation preference.

At the direction of the FHFA, the GSEs have expanded their credit and mortgage risk transfer programs with no public notice or opportunity to comment.

These programs have included the use of structured finance vehicles, obtaining insurance from non-mortgage insurers, including off-shore reinsurance, engaging in credit-linked note transactions in the capital markets, or using other forms of debt issuances or securitizations that transfer credit risk directly to other investors.

In particular, in 2018, each GSE began piloting a new credit risk transfer program under which the GSE purchases high-LTV loans ( i.e.

, LTVs above 80%) without MI and subsequently places mortgage insurance with a captive insurer controlled by one of our competitors, which captive in turn cedes 100% of the risk to a panel of offshore reinsurers.

Freddie Mac's program is known as IMAGIN and Fannie Mae's program is known as Enterprise-Paid Mortgage Insurance or EPMI.

Any success of these programs or even the perception that some of these risk-sharing structures have beneficial features in comparison to private MI ( e.g.

, lower costs, reduced counter-party risk due to collateral requirements or more diversified insurance exposures) may create increased competition for private MI on loans traditionally sold to the GSEs with private MI.

On October 19, 2020, the FHFA announced that it was seeking comments on a notice of proposed rulemaking that requires the GSEs to provide advance notice to the FHFA of new activities and obtain prior approval before launching new products.

Additionally, the proposed rule establishes revised criteria for determining whether new activity requires notice to FHFA and for determining if that activity is a new product that merits public notice and comment.

The proposed rule's requirements would also outline the process for FHFA's review of any new activity and the timelines for approving a new product, including issuing a public notice and requesting public comment about a new product.

Written comments on this notice of proposed rulemaking were due January 8, 2021, and it is too early to determine what restrictions any final rule may impose on 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.

2 unchanged sentences

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

There has recently been increased focus on the possibility of administrative reform that the White House and Treasury Department, in collaboration with the Director of the FHFA, may pursue independent of any legislative action.

Under the prior administration, there was increased focus on the possibility of administrative reform that the White House and Treasury Department, in collaboration with the Director of the FHFA, may pursue independent of any legislative action.

On September 5, 2019, in response to a Presidential Memorandum issued on March 27, 2019, the Treasury Department released a 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 in April 2019.

On November 18, 2020, the FHFA announced that it had finalized and sent for publication a rule establishing a new regulatory capital framework for the GSEs, noting that the rule was another step toward ending the conservatorships of the GSEs.

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

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

On January 14, 2021, the FHFA announced that it had agreed with the Treasury Department to amend the PSPAs.

Among other things, these amendments increased the GSEs' permissible capital retention to approximately $283 billion, continued the suspension of quarterly dividend payments in favor of dollar-for-dollar increases in the Treasury Department's liquidation preference, and allowed each GSE to issue up to $70 billion in new stock.

The amendments also imposed specific conditions required for the GSEs to exit conservatorship, including the resolution or settlement of all material litigation relating to the conservatorship, and each GSE achieving common equity tier 1 capital of at least 3% of its total assets.

These amendments provide the most direct path for the GSEs to exit conservatorship established to date.

The passage and timing of comprehensive GSE reform or incremental change (whether legislative or administrative in nature) is uncertain, especially considering the recent change in administration, 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.

5 unchanged sentences

Previous FHA rate actions and product introductions continue to impact its market share, and by extension, the private MI market.

In recent years, the FHA has not reduced its mortgage insurance rates;

however, we believe the current Presidential administration is more likely to support an FHA rate reduction than the prior administration.

The FHA's role in the mortgage insurance industry is significantly dependent upon regulatory developments.

1 unchanged sentence

however, no legislation has been enacted to date.

The prospect for future unilateral FHA action on premium rates or the passage of FHA reform legislation in either the House or Senate, and how differences in proposed reforms between the House and Senate might be resolved in any final legislation, remain uncertain.

The prospect for future unilateral FHA action on premium rates, which may be more likely under the current administration, or the passage of FHA reform legislation in either the House or Senate, and how differences in proposed reforms between the House and Senate might be resolved in any final legislation, remain uncertain.

The Dodd-Frank Act

2 unchanged sentences

Actions taken or rules implemented by the CFPB have the potential to impact the overall housing finance market, and by extension the private MI industry and our business.

Leadership at the CFPB changes from time-to-time, and given the significant independence of the Director of the CFPB in enforcing and administering its authority, it is difficult to predict whether or how the CFPB might seek to implement these laws in the future.

Ability-to-Repay Rule

Leadership at the CFPB changes from time-to-time.

Given that the Director of the CFPB is removable by the President at will, the agency's agenda, policies and actions likely will be significantly influenced by the then current administration.

Accordingly, it is difficult to predict whether or how the CFPB might seek to implement these laws beyond the current administration's term.

Ability-to-Repay and Qualified Mortgage Rules

In January 2014, the CFPB implemented the Dodd-Frank Act Ability to Repay (ATR) mortgage provisions, which govern the obligation of lenders to determine a borrower's ability to pay when originating a mortgage loan covered by the rule.

A subset of mortgages within the ATR rule are known as "qualified mortgages" (QMs), which generally are defined as loans without certain risky features, such as negative amortization, points and fees in excess of 3% of the loan amount, borrowers with DTI ratios in excess of 43% and terms exceeding 30 years.

A subset of mortgages within the ATR rule are known as "qualified mortgages" (QMs).

The original ATR/QM rule established two different categories of QMs, one referred to as the "General QM" category and a second temporary QM category, typically referred to as the "QM Patch." Currently, General QMs are generally defined as loans without certain risky features, such as negative amortization, points and fees in excess of 3% of the loan amount, borrowers with DTI ratios in excess of 43% and terms exceeding 30 years.

Loans may qualify as QMs under the QM Patch so long as they (i) satisfy the general product feature requirements of QMs (other than borrower DTI) and (ii) meet the underwriting requirements of the GSEs.

The QM Patch was scheduled to phase out upon the earlier to occur of the end of conservatorship or receivership of the GSEs or January 10, 2021.

QMs under the rule benefit from a statutory presumption of compliance with the ATR rule, thus potentially mitigating the risk of the liability of the creditor and assignees of the loan under TILA.

The rule also provides a temporary category of QMs that have more flexible underwriting requirements so long as they satisfy the general product feature requirements of QMs (other than borrower DTI) and so long as they meet the underwriting requirements of the GSEs (the QM Patch).

The QM Patch is scheduled to phase out upon the earlier to occur of the end of conservatorship or receivership of the GSEs or January 10, 2021.

In July 2019, the CFPB announced their intent to study possible amendments to the ATR/QM rules in anticipation of the planned expiration of the QM Patch on January 10, 2021, or following a short extension.

On January 17, 2020, the CFPB announced that the CFPB will propose an amendment to the ATR/QM rule that would move away from DTI, extend the date of expiration of the QM Patch beyond January 10, 2021 and issue by May 2020 a Notice of Proposed Rulemaking seeking comments on proposed amendments to the ATR/QM rule.

The expiration of the QM Patch or any action by Congress or the CFPB to modify it could affect the residential mortgage market and demand for private mortgage insurance.

The Dodd-Frank Act also gave statutory authority to HUD, the VA, and the USDA to develop their own definitions of "QM," which they have completed.

On October 20, 2020, the CFPB released a final rule that replaced the January 10, 2021 sunset date for the QM Patch with a provision stating that the GSE Patch will be available only for covered transactions for which the creditor receives the consumer's application before July 1, 2021, the mandatory compliance date of the CFPB's final General QM and new "Seasoned QM" rules.

Following its October rulemaking, on December 10, 2020, the CFPB released two additional final rules amending the definition of a General QM by replacing the current 43% DTI ratio limit with price-based thresholds, among other changes, and defining and providing for a Seasoned QM category of mortgage.

The new General QM and its safe-harbor statutory compliance protection will apply, under the final rule, to a covered transaction with the following characteristics:

• The loan has an annual percentage rate ("APR") that does not exceed the average prime offer rate ("APOR") for comparable transactions by 2.25 or more percentage points;

• The loan meets the existing QM product feature and underwriting requirements and limits on points and fees;

• The creditor has considered and verified the prospective borrower's current or reasonably expected income or assets, debt obligations, alimony, child support, and DTI ratio or residual income.

The General QM final rule does not prescribe particular underwriting standards for meeting the rule's "consider and verify" requirements, other than to require that such standards be reasonable.

The General QM final rule clarifies that to meet the "consider" requirement and thus preserve General QM status, a creditor must maintain written policies and procedures governing the creditor's treatment of income, assets and debt obligations, among others, and retain documentation showing its application of such policies and procedures at the individual loan level.

In addition, to satisfy the General QM final rule's "verify" requirement, the rule provides for a safe harbor if the creditor follows specific verification standards, including the single-family underwriting manuals of Fannie Mae and Freddie Mac.

The General QM final rule is effective on March 1, 2021 with a mandatory compliance date of July 1, 2021.

Between the effective date and mandatory compliance date, creditors may opt to use the new, price-based General QM definition.

Under the Seasoned QM final rule, subject to certain exceptions, first-lien, fixed-rate covered loans with terms of 30 years or less, which (i) satisfy certain timely payment requirements, (ii) are not "high-cost mortgages" and (iii) are held in portfolio by the originating creditor for 36 months, will receive QM safe harbor status as "Seasoned QMs." During the 36-month seasoning period, a loan must have no more than two delinquencies (as defined in the rule) of 30 or more days and no delinquencies of 60 or more days.

The rule allows payment deficiencies of $50 or less during the seasoning period, provided there

are no more than three such deficiencies.

Payment accommodations that meet certain requirements and are extended in connection with a disaster or pandemic-related national emergency do not disqualify the loan from achieving Seasoned QM status;

however, time spent in such accommodations also does not count toward the 36-month seasoning period requirement.

The Seasoned QM final rule includes the points and fees limit and consider and verify standards set forth in the General QM final rule.

The final rule is effective on March 1, 2021, with loans for which creditors receive applications on or after the effective date would be eligible to qualify for Seasoned QM status.

On February 23, 2021, the CFPB released a statement disclosing that it expects to issue shortly a proposed rule that would delay the July 1, 2021 mandatory compliance date for the General QM final rule.

If the mandatory compliance date for the General QM final rule is delayed, the GSE Patch will remain in place until such later date or sooner, if the GSEs exit conservatorship.

The CFPB's statement also indicated that it is considering whether to initiate new rulemakings to (i) reconsider certain aspects of the General QM final rule and (ii) revisit the Seasoned QM final rule.

The Dodd-Frank Act also gave statutory authority to HUD, the VA, and the USDA to develop their own definitions of QM.

The General QM Final Rule does not affect the QM definitions adopted by these agencies.

To the extent lenders find that these agencies' definitions of QM are more favorable to certain segments of their borrowers, they may choose government MI products over private MI products.

1 unchanged sentence

We expect that most lenders will continue to be reluctant to make loans that do not qualify as QMs because absent full compliance with the ATR rule, such loans will not be entitled to a "safe-harbor" presumption of compliance with the ability-to-pay requirements.

The ATR rule may continue to impact the mortgage insurance industry in other ways, including because the ATR rule has given rise to a subset of borrowers who cannot meet the regulatory QM standards, thus restricting their access to mortgage credit and reducing the size of the mortgage market.

While Congress is considering certain reforms that may address this restrictiveness, there is no certainty about whether legislation will be enacted or be successful in increasing access to mortgage loans for affected borrowers.

The CFPB recently completed its statutorily mandated assessment of the ATR rule's impact and effectiveness in meeting its objectives.

It is unclear what, if any, changes the CFPB may implement to address the findings of this assessment, including in connection with its broader review of amendments to the ATR/QM rules in anticipation of the QM Patch planned expiration.

It is unclear whether the revised General QM rule or the new Seasoned QM category will have a beneficial or negative impact on access to mortgage credit or the size of the mortgage market.

The Basel Capital Accord, as updated, sets out international benchmarks for assessing banks' capital adequacy requirements, which, among other factors, governs the capital treatment of MI purchased and held on balance sheet by domestic and international banks in respect of their residential mortgage loan origination and securitization activities.

6 unchanged sentences

Generally, first lien residential mortgage exposures that are prudently underwritten, including with respect to regulatory standards for LTV limits, and that are performing according to their original terms receive a 50% risk weight, while all other residential mortgage exposures are assigned a 100% risk weight.

The banking regulators clarified in a set of frequently asked questions issued in March 2015 that LTV ratios can account for private MI

in determining whether a loan is made in accordance with prudent underwriting standards for purposes of receiving a 50% risk weight.

A mortgage exposure guaranteed by a government MI will have a risk weight of 20%.

In December 2014, the Basel Committee on Banking Supervision (Basel Committee) issued a proposal for further revisions to Basel III's Standardized Approach for credit risk.

The proposal sets forth proposed adjustments to the risk weights for residential mortgage exposures that take into account LTV and the borrower's ability to service a mortgage as a proxy for a debt service coverage ratio.

The proposed LTV ratio did not take into consideration any credit enhancement, including private MI.

Comments closed on the 2014 proposal in March 2015, and in December 2015, the Basel Committee released a second proposal that retained the LTV provisions of the initial draft, but not the debt servicing coverage ratios.

In December 2017, the Basel Committee finalized its revisions to the Standardized Approach for credit risk, including the adoption of risk weights for residential mortgage exposures that, like the December 2015 proposal, take into account LTV but not debt servicing coverage ratios.

The revisions to the international Basel III framework would only take effect in the United States to the extent that they are adopted by the federal banking regulators and incorporated into the U.S.

Basel III rules.

The banking regulators clarified that LTV ratios can account for private MI in determining whether a loan is made in accordance with prudent underwriting standards for purposes of receiving a 50% risk weight;

however, mortgage exposure guaranteed by a government MI will have a lower risk weight, putting private MI at a disadvantage relative to government MI.

The Basel Committee on Banking Supervision (Basel Committee) previously proposed rules that would further reduce the benefit of private MI by not taking into consideration any credit enhancement, including private MI;

however, those revisions were not implemented, retaining the treatment of mortgage insurance.

We believe the existing U.S.

1 unchanged sentence

however, with the ongoing implementation of Basel III and the continued evolution of the Basel framework, it is difficult to predict the impact, if any, on the MI industry and the ultimate form of any potential future modifications to the regulations by federal banking regulators.

Current Expected Credit Loss Model

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic 326) which will be effective for public business entities in fiscal years beginning after December 15, 2019.

This standard changes the accounting for credit losses for certain instruments and applies to financial assets measured at amortized cost, including residential mortgage loans.

The new measurement approach based on expected losses, commonly referred to as the current expected credit loss (commonly known as CECL) model will require financial institutions to measure the life-time expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.

This is expected to result in earlier recognition of credit losses as reserves are required to be recorded for lifetime losses at origination.

However, public entities subject to the new measurement and disclosure standard will be allowed to consider mitigating factors, such as credit enhancement, when estimating lifetime credit losses.

Private mortgage insurance is considered an acceptable form of credit enhancement for such purposes and will provide an offset to a portion of the lifetime loss reserving requirements.

Private mortgage insurance is expected to reduce volatility that CECL introduces and offset the impact to pricing and financial statements.

We believe the continued use of private MI will benefit financial institutions as they adopt this standard;

however, as the accounting change has just become effective, it is difficult to predict what, if any, impact it will have on the private MI industry.

If the Basel Committee revises the Basel III framework to reduce or eliminate the capital benefit banks receive from insuring low down payment loans with private MI, our current and future business may be adversely affected.

Mortgage Servicing Rules

New residential mortgage servicing rules under RESPA and TILA, promulgated by the CFPB, went into effect in 2014.

Residential mortgage servicing rules under RESPA and TILA, promulgated by the CFPB, went into effect in 2014.

These rules included new or enhanced servicer requirements for handling escrow accounts, responding to borrower assertions of error and inquiries from borrowers, special handling of loans that are in default and loss mitigation when borrowers default, along with other provisions.

A provision of the required loss mitigation procedures prohibits the servicer from commencing foreclosure until 120 days after a borrower defaults.

A provision of the required loss mitigation procedures prohibits the servicer from commencing foreclosure

until 120 days after a borrower defaults.

Additional servicing regulations became effective in October 2017, providing some borrowers with foreclosure protections more than once over the life of the loan, imposing specific timing requirements for loss mitigation activities when servicing rights are transferred, and requiring that loss mitigation applications be properly dispositioned before allowing pursuit of a foreclosure action, among other requirements.

7 unchanged sentences

Loans insured by government MIs are not covered by HOPA.

Under HOPA, automatic

termination of BPMI would generally occur when the mortgage is first scheduled to reach an LTV of 78% of the home's original value, assuming that the borrower is current on the required mortgage payments.

Under HOPA, automatic termination of BPMI would generally occur when the mortgage is first scheduled to reach an LTV of 78% of the home's original value, assuming that the borrower is current on the required mortgage payments.

A borrower who has a "good payment history," as defined by HOPA, may generally request cancellation of BPMI when the LTV is first scheduled to reach 80% of the home's original value or when actual payments reduce the loan balance to 80% of the home's original value, whichever occurs earlier.

5 unchanged sentences

RESPA authorizes the CFPB and other regulators to bring civil enforcement actions and also provides for criminal penalties and private rights of action.

The CFPB has brought a number of enforcement actions under Section 8 of RESPA, including settlements with several mortgage insurers.

The CFPB's interpretation and enforcement of Section 8 of RESPA presents regulatory risk for many providers of "settlement services," including mortgage insurers.

The CFPB has brought a number of enforcement actions under Section 8 of RESPA, including settlements with several private mortgage insurers.

The CFPB's interpretation and enforcement of Section 8 of RESPA presents regulatory risk for many providers of "settlement services," including private mortgage insurers.

Mortgage Insurance Tax Deduction

1 unchanged sentence

Upon expiration in 2011, Congress temporarily extended the deduction for each tax year from 2012 through 2017.

Congress recently temporarily extended the deduction through December 31, 2020 and retroactively restored deductibility for the 2018 and 2019 tax years.

Congress recently temporarily extended the deduction through December 31, 2021.

Elimination of the private mortgage insurance tax deduction could have the effect of reducing demand for private MI products.

2 unchanged sentences

The combination of maintaining the deduction for second mortgages and not extending deductibility for private MI under the TCJA could have the effect of reducing demand for private MI products.

The federal Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act), enacted by Congress in 2008, establishes minimum standards for the licensing and registration of state-licensed mortgage loan originators.

The SAFE Act also requires the establishment of a nationwide mortgage licensing system and registry for the residential mortgage industry and its employees.

As part of this licensing and registration process, loan originators who are employees of certain lending institutions must generally be licensed under the SAFE Act guidelines enacted by each state in which they engage in loan originator activities and registered with the registry.

The federal SAFE Act, enacted by Congress in 2008, establishes minimum standards for the licensing and registration of state-licensed "mortgage loan originators," as defined under state law.

The SAFE Act also requires the establishment of a nationwide mortgage licensing system and registry for the residential mortgage industry and certain of its employees.

As part of this licensing and registration process, loan originators who are employees of certain covered institutions must generally be licensed under the SAFE Act guidelines enacted by each state in which they engage in loan originator activities and registered with the registry.

The CFPB administers and enforces the SAFE Act.

Employees of NMIC are not required to be licensed and/or registered under the SAFE Act as NMIC does not originate mortgage loans.

NMIS currently provides loan review services through third-party service providers, which have represented and warranted to NMIS that they comply with SAFE Act requirements in all applicable jurisdictions.

Employees of NMIC are not required to be licensed and/or registered under the SAFE Act as NMIC does not originate, process or underwrite mortgage loans.

NMIS currently offers loan review services that are performed by SAFE Act-licensed third-party service providers, which have represented and warranted to NMIS that they comply with SAFE Act requirements in all applicable jurisdictions.

Privacy and Information Security

15 unchanged sentences

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-K

Item 1. Business