Ladies and gentlemen, thank you for standing by and welcome to the MGIC Investment Corporation Q4 2021 Earnings Call. At this time, all lines have been pre-placed on mute to prevent any background noise. At the end of today's presentation, we will have a question-and-answer session. To ask your question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I'll now turn the conference over to Michael Zimmerman. Please go ahead.
Thanks, Jay. Good morning and thank you for joining us this morning and for your interest in MGIC Investment Corporation. Joining me on the call today to discuss the results for the Q4 of 2021 are Chief Executive Officer, Tim Mattke, and Chief Financial Officer, Nathan Colson. I want to remind all participants that our earnings release of last evening, which may be accessed on MGIC's website, which is located at mtg.mgic.com, includes additional information about the company's quarterly results that we'll refer to during the call, and includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures. We have posted on our website a presentation that contains information pertaining to our primary risk in force, new insurance written reinsurance transactions, and other information which we think you'll find valuable.
I also wanted to remind listeners that from time to time we may post information about our underwriting guidelines in other presentations or corrections to past presentations on our website that investors and other interested parties may find valuable. During the course of this call, we may make comments about our expectations of the future. Actual results could differ materially from those contained in these forward-looking statements. Additional information about those factors, including COVID-19, that could cause actual results to differ materially from those discussed on the call, are contained in the Form 8-K that was filed last night. If the company makes any forward-looking statements, we're not undertaking an obligation to update those statements in the future in light of subsequent developments.
Further, no interested party should rely on the fact that such guidance or forward-looking statements are current at any time other than the time of this call or the issuance of the 8-K. With that, I'd like to turn the call over to Tim Mattke.
Thanks, Mike, and good morning, everyone. I'm pleased to report that we achieved very strong financial results in the Q4, and for that matter, the full year of 2021. These results reflect the solid credit quality of our growing insurance in force, a strong housing market, a decreasing delinquency rate in our market presence, as well as the current favorable economic conditions. After my opening remarks, Nathan will provide more detail about our financial results and review the progress we have made executing in our capital management strategy. Before we open the line for questions, I will wrap up by discussing the current operating environment, including activities related to housing finance policy. During the quarter, we earned GAAP net income of $174 million, nearly 15% more than the same period last year.
For the full year of 2021, GAAP net income increased 42% to $635 million, compared to $446 million in 2020. These strong quarterly and annual financial results improved primarily because losses incurred were materially lower when compared to the same periods of 2020. The improved credit performance reflects the lower level of new delinquency notices received throughout 2021 compared to 2020 and the improved cure rates on policies previously reported delinquent. I am optimistic that the favorable delinquency trends that we have been experiencing will continue throughout 2022. In addition to our improvement in losses incurred, in 2021, we capitalized on one of the largest mortgage insurance markets in the company's 65-year history by writing a record $120 billion of new insurance, including $27 billion in the Q4.
This level of new business writings, combined with a higher annual persistency, resulted in our insurance in force increasing to $274 billion, 11% higher than the same period last year. Going into 2022, single-family housing demand remains strong, and interest rates, despite rising off recent lows, are still attractive by historical standards. The FHFA and the GSEs are increasing their focus on improving access to mortgages, especially for first time and low and moderate-income borrowers. The combination of these factors leads us to expect that the robust purchase market conditions will persist. That said, we do expect the overall market opportunity for private mortgage insurance will be smaller in 2022, ranking just below the last two years of record volume. This reduction will be driven primarily by a decline in the number of refinance transactions compared to 2021.
For some context, refis accounted for 20% of our total NIW in 2021, ranging from 40% in the Q1 to less than 10% in the Q4. Based on the expected path of interest rates, we expect refinances to remain on the low end of the spectrum in 2022. The composition of our current application pipeline, with more than 90% purchase transaction, supports that expectation. We currently expect that the new business we write, combined with increasing annual persistency, will result in our insurance in force portfolio growing at a modestly slower pace than what we have recently experienced. Taking a look at the performance of our in-force portfolio. Our loss ratio was a negative 10% in the quarter. This result reflects two things.
First, our re-estimation of loss reserves and prior delinquencies resulted in favorable loss reserve development, primarily to reflect better-than-expected cure rates on loans that were delinquent in the Q3 of 2020 and prior. Second, the number of new delinquencies in the Q4 was low, reflecting the high quality of our insurance in force. I continue to be encouraged by the current business environment and the strength of our new business writings and the low level of new delinquency notices, which has persisted throughout January. In the quarter, we discussed that our capital management strategy centered on maintaining financial flexibility of both the holding company and the writing company to protect our policy holders and to create long-term value for shareholders. We believe this value can be created by writing more primary mortgage insurance, pursuing new business opportunities, retiring debt, paying dividends, or repurchasing stock.
During the quarter, reflecting our liquidity position, the strength of our balance sheet, and our expectations for continued favorable financial results, we execute on several of these options to increase the long-term value to shareholders of our company while maintaining exceptional financial strength. Specifically, MGIC paid a $250 million dividend to the holding company. We also returned a significant amount of capital to our shareholders through the repurchase of 9 million shares of common stock for $141 million, the repurchase of $99 million of par value of the 9% junior convertible debentures due in 2063, eliminating approximately 7.5 million potentially dilutive shares, and the payment of our quarterly common stock dividends of $26 million. Finally, the board also recently declared an $0.08 per share dividend payable on March 2, 2022.
In the last two years, despite navigating through all the COVID-related challenges, we reduced the number of fully diluted shares outstanding by 10%, increasing the common stock dividend by 33%, and increased book value per share by more than 22% after distributing $172 million in common stock dividends. Nathan will go over more detail on these actions in a minute. We believe that our capital management strategy will allow us to take advantage of near-term opportunities to write significant amount of new business that meets our return objectives while continuing to create long-term value for shareholders and remaining a well-capitalized insurance counterparty. In summary, we have a strong and dynamic balance sheet. We're confident in our positioning in this market, and we like the risk/reward equation that the current business conditions offer and are excited about the future.
With that, let me turn it over to Nathan.
Thanks, Tim, and good morning. As Tim mentioned, we ended 2021 with another quarter of strong financial results. In the Q4, we earned $174 million in net income, or $0.52 per diluted share, and generated an annualized 16.6% return on beginning shareholders' equity. For the full year, net income was $635 million or $1.85 per diluted share, compared to $446 million or $1.29 per diluted share in 2020. The return on beginning shareholders' equity was 13.5% in 2021, compared to 10.4% last year. On adjusted net operating income basis, in the Q4, we earned $0.61 per diluted share versus $0.43 per diluted share in 2020.
For the full year, we earned $1.91 per diluted share versus $1.32 in 2020. A detailed reconciliation of GAAP net income to adjusted net operating income can be found in the press release. During the quarter, total revenues were $294 million, compared to $302 million last year. The net premium yield for the Q4 was 37.3 basis points, which was down 1.1 basis points compared to last quarter and down 5.6 basis points from the Q4 of 2020. The decrease in the net premium yield continues to be primarily the result of a decline in the in-force premium yield as the older policies continue to run off and be replaced with policies which generally have lower premium rates.
The low level of refinance activity decreased the amount of accelerated premiums earned from single premium policy cancellations. During the quarter, they were $18 million, which was flat the last quarter, but down from $32 million earned in the Q4 of 2020. We expect that as the older vintages continue to run off, the in-force premium yield will continue to decline throughout 2022 at a similar pace that it did in 2021. On the reinsurance front, we have agreed to terms to place both an additional 15% quota share on our 2022 NIW, bringing the total quota share to 30% and a 15% quota share on our 2023 NIW. During the quarter, operating expenses were $46 million compared to $48 million for the same period last year.
For the full year, operating expenses were $211 million versus $189 million in 2020. The majority of the year-over-year increase was a result of investments we are making in our technology and data and analytics infrastructures, which are already paying dividends in how we approach the market. The lower level of expenses in the Q4 was largely due to timing and certain one-time items that we do not expect to recur. For the full year 2022, we expect that operating expenses will be in the $225 to 230 million range as we continue investing in our platform. Over time, we continue to expect the level of incremental spending to decline as some of these transformational initiatives are completed and we realize the full value from these investments. Shifting over to credit.
Net losses incurred were negative $25 million in the Q4, compared to $20 million last quarter and $46 million in the Q4 last year. In the quarter, we received approximately 10,500 new delinquency notices, which represents less than 1% of the loans insured at the start of the quarter. While up from the 9,900 new notices received in the Q3, the number received is 31% less than the number of notices received in the Q4 of 2020 and 22% less than we received in the Q4 of 2019.
We are encouraged by the strength of the housing market and the credit trends we are experiencing, including the low level of early payment defaults, and believe they are good indicators of near-term credit performance. The estimated claim rate on new notices received in the Q4 of 2021 was approximately 7.5%. The claim rate on new notices has been at this level since the Q4 of 2020. In the quarter, our re-estimation of loss reserves on prior delinquencies resulted in $52 million of favorable loss reserve development net of reinsurance, compared to $8 million of favorable development last quarter and immaterial unfavorable development in the Q4 last year. Favorable development in the quarter was primarily related to delinquency notices received in the Q3 of 2020 and prior.
The cure activity to date on those delinquencies has exceeded our expectations, and as a result, we've adjusted our ultimate loss expectations down. For all of 2021, incurred losses totaled $65 million compared to $365 million in 2020. The lower level of incurred losses was primarily a result of the 60% fewer new notices we received in 2021 compared to 2020, a stable claim rate on those new notices, and $60 million of favorable loss reserve development. Of the approximately 33,000 loans in our delinquency inventory at December 31, approximately one-third or 11,000 loans were reported to us to be in forbearance, and we estimate that the majority of those loans in forbearance will reach the end of their forbearance period by the middle of 2022.
The number of claims received in the quarter remained very low. We continue to expect claim payments to remain low for the next few quarters, given the timelines for foreclosure and evictions associated with GSE loans and the additional procedural safeguards imposed by the CFPB. Primary paid claims in the quarter were $16 million, compared to $18 million last quarter and $12 million in the Q4 of 2020. Next, I wanna spend a couple minutes talking about our capital management strategy and the capital actions we have recently taken. I mentioned last quarter that both our capital levels at MGIC and liquidity levels at the holding company were above our targets.
As a result, in the Q4, we received OCI approval and paid a $250 million dividend from MGIC to the holding company, and the holding company executed on several capital management actions in the quarter. As Tim mentioned, in the Q4, we paid a $0.08 per share dividend for a total of $26 million and repurchased 9 million shares of common stock for $141 million. For the full year of 2021, we paid $94 million in common stock dividends and repurchased 19 million shares of common stock for $291 million. The 19 million shares repurchase was approximately 5.6% of the number of shares outstanding at the beginning of the year.
During the quarter, we also repurchased $99 million par value of our 9% junior convertible debentures due in 2063. I mentioned last quarter that retiring the debentures was a priority for us, and the repurchases in December eliminated 7.5 million potentially dilutive shares, reduced our annualized interest expense by $9 million, and reduced our year-end debt to capital ratio by 130 basis points on a pro forma basis to a level below 20% at year-end. We expect to continue to delever over time and to approach a longer-term debt to capital ratio in the low to mid-teens. At year-end, our holding company's $663 million of liquidity exceeded our target, and we continued our share repurchase program in 2022, repurchasing 3.9 million shares for $60 million in January.
The board also recently declared a $0.08 per share dividend payable on March 2. Circling back to the debentures, as a reminder, we can redeem the remaining debentures for principal plus accrued interest when our share price closes above a certain level for 20 of 30 consecutive trading days. For 2022, that share price level is $16.98. We currently expect to provide a redemption notice for the debentures when that requirement is met, with the redemption date at least 30 days later. If we were to provide the redemption notice, we would expect virtually all of the holders of the debentures would elect to convert their debentures into common stock before the redemption date. Under the terms of the debentures, we may pay cash in lieu of issuing shares, and we would expect to do so.
At year-end, our writing company had $2.2 billion of available assets in excess of the PMIERs minimum requirements or a sufficiency ratio of 160%, which exceeded our current target level. MGIC's PMIERs available assets were relatively flat during the quarter as the $250 million dividend to the holding company was largely offset by strong cash flow from operations. MGIC's level of PMIERs assets decreased during the quarter as its minimum required assets increased due to the growth of its risk in force, the cancellation of two quota share reinsurance agreements, and the runoff of the PMIERs benefit on existing ILN deals. If the current macroeconomic environment persists, we expect MGIC will continue to increase the amount of its capital in excess of its target level.
We will continue to assess MGIC's capital position, and we'll continue discussions with our regulator, the OCI, about additional dividends to our holding company as appropriate. As I mentioned last quarter, we expect any dividends to occur less frequently than the quarterly cadence we had pre-COVID. We continue to believe that our balanced approach to maintaining a strong capital position, including using forward commitment quota share treaties and accessing the capital markets for excess of loss reinsurance via ILN transactions, provides flexibility to maximize the long-term value of both the writing company and holding company. This value can be created by writing more primary mortgage insurance, pursuing new business opportunities, retiring debt, paying dividends, or repurchasing stock. With that, let me turn it back to Tim.
Thanks, Nathan. Before moving to questions, let me address a few additional topics. The federal government, through various agencies, including the FHFA, CFPB, and the FHA, continues to focus its housing policy efforts on promoting equitable access to sustainable and affordable housing, mitigating foreclosure and eviction risk for homeowners impacted by COVID-19, and ensuring a successful economic recovery, as opposed to making large-scale changes to the housing finance infrastructure. We will continue to advocate for the increased use of private mortgage insurance in the housing finance industry in order to reduce taxpayer exposure to housing while still maintaining a resilient housing finance system. At MGIC, we are focused on providing critical support to the housing market, especially low and moderate income and first-time homebuyers. We had a very successful year.
We wrote a record $120 billion of new business, grew our insurance-in-force book by 11%, generated $635 million of net income, delivered a 13.5% return on equity, improved book value per share by 9.3%, and reduced the number of shares outstanding by 5.4%. Longer term, I remain encouraged about the future role that our company and industry can play in housing finance and believe that many regulators and policymakers share a similar view as our company and industry are organized solely to provide credit enhancement solutions to lenders, borrowers, and the GSEs in all economic cycles.
Not only does private mortgage insurance offer dedicated capital day in and day out to the housing industry, it also offers many solutions and a great value proposition for lenders and consumers to overcome the number one barrier to homeownership, the down payment. In summary, we are currently writing high levels of quality new insurance and are experiencing low levels of delinquencies. The housing market remains robust, and we have a book of business that has strong underlying credit characteristics, which is supported by a strong and dynamic balance sheet with a low debt-to-capital ratio, an investment portfolio of nearly $7 billion, contractual premium flow, and a robust reinsurance program. I am confident in the positioning of this market, and we like the risk/reward equation that the current conditions offer.
We have the right team in place to build off our solid foundation to continue to deliver competitive offerings and our best-in-class service to our customers and generate strong returns for our shareholders through the core business as well as capital returns. With that, operator, let's take questions.
Thank you. As a reminder, if you would like to ask a question, please press star, then the number one on your telephone keypad. Our first question comes from the line of Douglas Harter of Credit Suisse. Your line is open.
Thanks. In your prepared remarks, you mentioned that you expect the in-force yield to continue to decline. Is there any sense you can give us as to maybe over the course of 2021 where the yield is on new insurance written versus the in-force yield, just to get a sense of magnitude as to, you know, where that ultimately might level out?
Hey, Doug, it's Nathan. Thanks for the question. You know, we haven't disclosed what the kind of current rate on new business is, but we saw the in-force yield come down about a basis point a quarter throughout 2021. That's kind of what we think is the most likely scenario for 2022.
Great. Then I guess on the single premium cancellation, you know, given that rates have kind of already risen, has that kind of stabilized or is there more pressure? You know, is that number set to come down as persistency improves further?
Yeah, it's Nathan again. I think that, you know, even in environments with, you know, flat or even rising rates, we will see some level of accelerated single cancellation, just as we see some level of, you know, kind of normal falloff. The level that we're seeing now, you know, reflects an environment where we had less than 10% refinance transactions. You know, could it go lower from here? You know, certainly, but, you know, I don't think. It's not as if it's gonna go to zero just because rates are rising.
That's helpful. Thank you, Nathan.
Thank you. Our next question comes from the line of Bose George of KBW. Your line is open.
Hey, good morning. Thanks for taking my questions. You know, when we look at the percentage of risk in-force, it's concentrated in the policy years 2020 and 2021, about 70%. That, you know, it kind of appears high for any two policy years just by historical levels. I'm curious just how do you think about maybe that level of concentration risk, so to speak, in those two policy years going forward?
Well, Colin, it's Tim. It's a good question. I think it's something we're cognizant of, right? The two biggest sort of markets in our history. You know, I think we also look at 2022, as we said. We think that's gonna be another large market. We think about sort of temporal diversification that you'll have with that. I think ultimately, we also look at the underlying credit quality of those books of business and have a great amount of confidence in what the credit quality is absent what's happened with home price appreciation.
Obviously, with the home price appreciation that's happened over the last couple of years, we feel good, especially about the 2020 book of business that would have been originated, sort of prior to a lot of that sort of appreciation happening. While it's something we do, we do keep an eye on, it's something I'd say that we're not concerned about based on all those sort of qualities that I discussed.
Got it. Thank you. That's helpful. The release kind of mentions that you terminated the 2017 and 2018 QSR transactions in the quarter. I'm just curious maybe what drove that decision or maybe just more broadly, what are the advantages of ending a QSR policy early?
It's Nathan. You know, we mentioned last quarter on the call that we had, you know, elected to cancel those. We had to give a kind of notice period. I think the rationale is really that because of the large amounts of runoff out of those book years, those deals had just gotten relatively small. Each one was providing, you know, maybe less than $50 million of PMIERs benefit for us. Partially, you know, administratively feel really comfortable coming back onto risk from loans that were written in 2017 and 2018. Just felt like the right answer for us from a. You know, I think given our capital position, could certainly absorb taking on that incremental risk as well.
Okay, great. That makes sense. Thanks. Those were all my questions.
Thanks.
Thank you. Next question comes from the line of Mark DeVries of Barclays. Your line is open.
Yeah, thanks. Actually, have a couple of follow-ups on topics already addressed. On the average premium, you know, Nathan, my understanding is that one of the headwinds has been the accelerated kind of runoff of higher premium business written in the past. Wouldn't you expect that headwind to at least fade some, as we go into 2022 as refinance really falls off?
Yeah, no, Mark, it's a good question. I do think, you know, we expect that 2022 is going to be a large market as well. Some of that may start to fall off a little bit. Current new business is being written below the average in-force yield. We do think that just naturally it's going to continue to come down. Certainly have a lot more conviction in that over the next quarter or two than beyond that, just because market dynamics evolve and the size of the market and runoff, et cetera. I think, you know, continuing to guide to about a basis point a quarter for us on the in-force yield coming down through 2022.
Okay, got it. Could you discuss what impact, you know, high HPA we've seen is having on the quality of the borrowers you're insuring or higher prices pushing out lower income borrowers and maybe pushing some higher income borrowers into, you know, needing, you know, loans with MI who might have otherwise had enough money to kind of put down to buy a home?
Hey, Mark, it's Mike. You know, on the margin, I'll say yes, you know, to that. You can kind of see that reflected. I'd say it's really in any purchase market, but certainly because of the HPA over the last couple of years, it's probably tightened that a little bit more. You see a little bit of drift up in the percentage of DTIs, you know, above 45, which for us still remains, you know, pretty low, you know, somewhere around, you know, 14, 15% or so above that 45%. A little bit lower, you know, or a little bit higher on the LTV. I'd say on the margin, you know, that's the case, but we haven't seen a broad swath of, you know.
When you look at the FICO distributions and things of that nature, there's not, you know, material changes there, but certainly on the margin.
Just a related question on that. How do you think about the impact of that HPA on risk? I mean, obviously it's an unmitigated positive for your existing risk. When you think about writing new business on prices which are up 20% year-over-year, how do you think about kind of the risk of a correction and what that could do for credit on new business?
Yeah, Mark, it's Tim. I mean, it's something that we have to think about, right? It's with, as with any sort of asset, when there's increased appreciation, you think about what the stress scenarios can be and what sort of peak to trough can be. I think we feel pretty confident in the work we do on stress scenarios that we're taking that into account in our pricing dynamics and feel like we still are in a really good risk-return equation. I think you're right. When you think about home price appreciation, it makes you feel really good about the books of business you've already written. You have to...
I mean, what we're focused on always is what does it do to your pricing now and still feel really confident about sort of pricing dynamics to be able to get the right return. Even with, I think it's safe to say, you know, you can paint worse stress scenarios. Although, with the credit quality of the book of business, I think it's tough to paint really dire sort of stress scenarios for us, especially when you consider all the reinsurance we have behind our books of business as well.
Okay. That's helpful.
Yeah. Mark, I was just gonna add on that with the reinsurance comment that Tim made there too, right? A lot of the focus over the last, you know, recent period's a bit about the capital benefits of the reinsurance, but obviously there's, you know, multiple values of having programs in place that to Tim's point.
Yeah. Makes sense. Thank you.
Sure.
Thank you. Next question comes from the line of Bose George of KBW. Your line is open.
Bose?
Hey, guys. Can you hear me?
Yep.
Yep.
There you are.
Great. Yeah, first, actually, can you just talk about, you know, how we could think about the, you know, size of potential dividends up to the holding company this year, you know, relative to what you know, paid in 2021?
Bose, this is Nathan. I'll take that one. You know, I think like we've said for some time, it's really gonna be dependent on the capital situation that we are throughout the year. If, you know, if we're in a favorable macroeconomic environment, we do think that we're gonna continue to generate capital above our target levels. That will be supportive of, you know, dividends. We've shown in the last half of this year that we can pay dividends at a, you know, at a fairly high rate.
I think first order condition there is that the environment is attractive for us and that we think we have excess capital. So that's an evaluation that we'll continue to make. You know, if appropriate and if we can get the approvals from our regulators, you know, we'll look to continue to pay dividends.
Just to follow up on that, I mean, the dividends in the back half of 2021, you know, I guess, should we think of that as a bit of a catch-up in the sense that that's, you know, maybe that's more of an annualized level of payout that you did, I guess effectively $400 million for the year?
I would just point to, given our capital position at both, you know, kind of the end of the Q2 and the end of the Q3, felt comfortable with the $150 million dividend, and then the $250 million dividend. You know, we'll continue to reassess and if we think that our capital position and the environment supports, you know, dividends at that level, or higher or lower, then that's kind of the path that we'll follow going forward.
Okay, thanks. Actually just one on market share. I mean, I guess it's early to tell, but it looks like your NIW came in a little better than, you know, we had expected. Just curious your thoughts on, you know, how you see your share in the market. Also on a related note, just on the bulk market, how is that trending or is that, you know, is that moving share around a little bit as well? Thanks.
From a bulk market, I really don't think there's much there to, I guess, to focus on for moving share around. It's tough to know obviously exactly where other people are. Being only the second to release, again, it's tough to know where we fall in a market share. I think we fall back on, we felt really good about the capital we were able to deploy this quarter. Felt the market was good. I think we feel like we have a pretty good read on what the market is and sort of pricing in the market. And also think that we're delivering sort of the customer service to our customers that they want, and that's translating into a lot of good, high-quality business that we're writing. We'll wait and see what other people report.
You know, we feel good about what we were able to accomplish in the Q4.
Okay, great. Thanks.
Thank you. Next question comes from the line of Mihir Bhatia of Bank of America. Your line is open.
Hi, good morning, and thank you for taking my question. Just for maybe to start, yeah, I did wanna ask about just loan performance of the forbearance loans in particular. Are they performing in line with regular performing mortgages, or is it more in line with re-performing mortgages as they cure?
This is Mike. If I follow it all right, I mean, 'cause both when they're re-performing, so they kinda are the same, when you're current.
Okay.
These loans that are coming out of forbearance, we don't get complete reporting. On the reporting we get, the majority of them are coming out that are considered current have used the deferral program.
Mm-hmm.
They're, you know, continuing to make their monthly obligations and staying current. Performing, you know, just like any other borrower that is current on their obligations.
Okay. Yeah, maybe I'm not asking it clearly. I guess what I was trying to understand is like, you know, it seems like previously delinquent mortgages have a higher tendency to be delinquent again versus-
Oh, I see.
Yeah.
Yeah. I see.
Yeah. That's it. That's where I was going.
Redefaulting. Yeah. No, I mean.
Yeah.
I think it's too early, you know, in the cycle there, but I think just like with the HAMP modifications, right, the borrower's payments did not go up. Their mortgages weren't capitalized. Like on the HAMP modifications, you know, the vast majority of those continue to perform. You know, they don't redefault. I think we'd expect similar, if not better, performance out of these because they just extended out, you know, the mortgage payments. Too early to tell anything definitive on it.
Understood. Just one other question. In terms of your delinquent inventory, you know, just given the home price appreciation, can you give a statistic on how much, or can you give a statistic on how much of the inventory has, I don't know, like LTV below 90%? As you estimated, I understand it's probably at like an MSA level versus an individual level. Just trying to understand how much home price appreciation has helped your delinquent inventory.
You know, we don't have it right off the top of our head. We do certainly look at the adjusted, you know, the mark-to-market LTV. Maybe kind of referring back to a question earlier about the risk profile of so much being in the 2021, you know, business. You certainly look at it. I'd say the vast majority have seen price appreciation because you look at it at the MSA level. I don't have a precise figure for you to give, but, you know, I'd say similar to what you're hearing across the marketplace in general, that the vast majority of loans, you know, 2018, 2019 and 2020, are the ones that are delinquent and there's been a lot of price appreciation.
Okay. My last question is just, are there any markets, anything you're looking at right now where it gives you pause? I mean, it feels like it's a very benign housing credit environment, very favorable backdrop. I'm just curious, is there anything out there that you're looking at which is maybe giving you pause or where you're thinking you might be pulling back a little bit? Anything that you can comment on that. Thank you.
Yeah. Yeah, Tim. I mean, we're always looking for if there's any weaknesses in, if it's certain markets, certain sectors. So it's something we, you know, look at regularly. I think it's fair to say that we still feel really good about, you know, housing and HPA and sort of the environment that we're originating into right now. And that's I think that's pretty broad, right? I would say from any market specifically, I don't think anything that gives us tremendous amount of pause. Again, I think as we talk about factors of HPA and where prices continue to go up, and you think about affordability.
It's something that we'll continue to watch as we move through 2022, but I'd say through what we've written in 2021 in the first part of the first month here in 2022, it's just something we're monitoring, but nothing that I would say that we feel concerned about.
Thank you.
Sure.
Thank you. Next question comes from the line of Geoffrey Dunn of Dowling & Partners. Your line is open.
Thanks. Good morning. Nathan, just to revisit the dividend discussion. You've historically been a quarterly consistent dividend payer out of MGIC. Obviously, the last two quarters have been lumpy specials. Are you going back to a regular quarterly dividend supplemented by specials, or is it more of a one-off special approach on an annual basis going forward?
Yeah. Jeffrey, no, thanks for the question. You know, we did have the quarterly dividend from MGIC as a holding company, pre-COVID, but if you recall, we also paid a $320 million kind of special dividend on top of that. You know, at the time, initially, the dividends were really trying to line up to the holding company's obligations, but given our liquidity position, that didn't, you know, make as much sense to us. You know, I think we're probably down the path of seeking special dividends on a, you know, kind of on a more ad hoc basis. I wouldn't, you know, say they're necessarily annual. I think they could be more frequent than annual. I just don't think they're gonna happen quarterly like they did pre-COVID.
Okay. Tim, you mentioned that expenses are gonna remain elevated with your tech investment, and you call them kind of transformational. Can you talk a little bit more about that? You know, what does that mean for MGIC? What does it improve at your business? What does it change going forward? And what is the underlying run rate expense base and when might we return to that, or do you just grow into it?
Yeah, I'll talk a little bit about, I guess, the high level, and then Nathan talk a little bit about the run rate. You know, I view it on a couple dimensions. You know, one is that I think we've tried to invest smartly about how we approach the market, and Nathan sort of alluded to that in the opening remarks. You know, the environment in which we compete and how we need to understand market dynamics from a pricing standpoint are different than they were three or four years ago. We've tried to invest in that regard and think that we've done a really good job of understanding sort of the market dynamics through some of that investment.
I think when you dive a little bit deeper from an analytical standpoint, we strongly believe, too, that there's things that we can think about from a credit standpoint over time, in the underwriting process and pricing the risk appropriately. I think others have talked about that in the industry, too. I think we're, you know, I think just scratching the surface on those types of things. I don't think those things probably pay as quick a dividend necessarily, but it makes sure that we're staying on top of that. The other way is really how we think about our customer service, right?
How we interact with our customers and making sure that we, our platforms, from an operation standpoint, allow us to integrate seamlessly with our customers, who are over time really gonna be looking to be more efficient themselves. From our company standpoint, we always wanna make sure that we can meet our customers where they wanna be met, and we can meet and exceed their expectations as to how they interact with the company. I think that there's more investment in the digitization of mortgage than probably ever has been. We wanna make sure that we're on the forefront of that as opposed to lagging behind on that. I think that'll pay dividends as well as it has over time for MGIC of maintaining great customer service when we interact with our customers.
Yeah. Jeff, just relative to kind of run rates and where we are today versus the future. You know, I think we do expect some level of elevated investment. I gave the kind of guidance in the kind of $230 million range. I think if you think about 2023, we think that's another year of elevated investment for us. You know, exactly what that looks like will be largely dependent on you know, our successes in 2022 and where the market is and where we need to be. But you know, as we sit here today, I think we think that that level starts to come down a little bit you know, beyond that point.
We'll continue to kind of reevaluate what we need to compete effectively in the market and make sure we're well-positioned to do that.
Okay. My last question is on ILN cost of capital. You know, if you do the upfront expense when a deal is launched, the credit you get, you know, it looks like it's low- to mid-single-digit after tax. How do you think about the true cost of capital across the cycle when you look at, you know, your two oldest deals that are still outstanding, providing no PMIERs capital benefit?
Yeah. Jeffrey, it's Nathan. I think it's a good question. You know, those first two deals were structured in a way with delinquency triggers that didn't react great during COVID, where we had a large increase in delinquencies, but also a large runoff of in-force policies, which has kept the delinquency rate, which is kind of the number of loans divided by the now remaining number of loans above those thresholds. You know, the whole market has changed the structure of the deals to not necessarily contemplate that situation so that doesn't happen again.
You see on our kind of most recent two deals, or the one that's starting to pay down, you know, it's happening kind of consistent with the PMIERs benefit running off. When we think about cost of capital for doing a deal, we're not just thinking about one scenario. We're looking at a wide range of scenarios, including some where the ILN deals take losses, you know, scenarios where prepayments are fast or slow. For us, you know, at inception, the expected cost is very attractive, which is, I think, why we'll continue to try to execute in that market as long as it's available.
Okay, great. Thank you.
Thank you. Next question comes from the line of Ryan Gilbert of BTIG. Your line is open.
Hi. Thanks. Good morning, everyone. First question on purchase NIW, the year-over-year growth looked particularly strong, better than I expected, and I'm wondering if you can add any details into what was driving the growth. Is that just how you think the volume looked in the Q4, or do you think that there was some differences in your competitive positioning relative to peers that drove that growth? Any details would help.
Well, listen, I don't think there was anything specific that we did in that regard. Obviously it's mostly driven by our customers and where they're producing. So I don't have any great insights as to, you know, why that performed better than maybe what you would've expected. But it wasn't anything from a positioning standpoint on our end. You know, it's just trying to deploy capital and obviously a heavy purchase market that we saw in the Q4.
Okay. Got it. Thanks. Second question, would just love to hear some details or color around the new business opportunities that you're evaluating. Is that within the core PMI business or are you looking at adjacent industries?
I would say that there's nothing specific to talk about there. I think what we have said in the past and will continue to say is, you know, we want to make sure that we keep our eyes open to opportunities. You know, first we got to service the market and our customers the way that we currently do. But if we've had excess capital and think about sort of how we can deploy that, we want to at least think about those type of opportunities and consider them and obviously hear different opportunities that could be out there. Quite frankly, we haven't found anything that's really actionable.
I think that ultimately for our shareholders, the best thing that we could do then at that point is, you know, purchase some of the debt, share repurchases, the dividends to the shareholders. We always wanna be cognizant if there's other opportunities out there that could either enhance what we currently do or be something else. I would say that there's nothing specific that we think is actionable in the near term by any means.
Okay. Got it. Yeah. The capital priorities as you lay them out make a lot of sense. Has there been any just change in terms of quality of opportunities or pricing in the market that warranted a call-out this quarter versus others?
I don't think anything specifically, no. I mean, I think, you know, the market obviously dictates a little bit what flows to you at certain times, depending upon maybe how other people react. I think the Q4 in particular, I don't think we saw much of anything that seemed unusual or that significant shift in maybe how competition was behaving. You know, it felt like it was, again, a very good quarter. I felt comfortable with the capital we were able to deploy, the returns we were able to deploy it. Again, looking forward to 2022.
Okay. That's all I had. Thanks very much.
Okay.
Thank you. There are no further questions at this time, and I would like to turn the call over to our presenters for closing remarks.
Okay. Thanks, Jay. Appreciate everyone's interest in MGIC and hope everyone has a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.