Item 1.01 Entry into a Material Definitive Agreement
On May 6, 2020, NMI Holdings, Inc. (the "Company" or "NMIH") and its
wholly-owned subsidiary NMI Services, Inc. (the "Guarantor") entered into that
certain Amendment No. 1 (the "Amendment"), among the Company, the Guarantor,
JPMorgan Chase Bank, N.A., as administrative agent (the "Agent") and the Lenders
(as defined in the Credit Agreement), to the Company's existing Credit
Agreement, dated as of May 24, 2018 (as amended, modified and supplemented from
time to time prior to the date hereof, the "Credit Agreement") among the
Company, the Agent and the lender parties thereto. The effectiveness of the
Amendment is subject to certain conditions, including, among other things, the
repayment in full of the Term Loans (as defined in the Credit Agreement). Upon
becoming effective, the Amendment will, among other things, amend the Credit
Agreement to permit the Company's incurrence of up to $400 million in aggregate
principal amount of secured Indebtedness (as defined in the Credit Agreement) in
the form of one or more series of senior secured notes or loans to be secured by
the same collateral (on a pari passu basis) that secures the Obligations (as
defined in the Credit Agreement). The foregoing summary of the Amendment does
not purport to be complete and is subject to, and qualified in its entirety by,
the full text of the Amendment, which is attached hereto as Exhibit 10.1 and is
incorporated herein by reference.
Item 2.02 Results of Operations and Financial Condition
On May 6, 2020, the Company issued a press release announcing its financial
results for the quarter ended March 31, 2020. A copy of the press release is
furnished as Exhibit 99.1 to this report.
The information set forth in Item 7.01 of this Current Report is incorporated by
reference into this Item 2.02. The information included in, or furnished with,
this Item 2.02, including Exhibit 99.1, has been "furnished" and shall not be
deemed "filed" for purposes of Section 18 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), nor shall it be deemed incorporated by
reference in any filing or other document under the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, except as shall be
expressly set forth by specific reference in such filing or document.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant
The information in Item 1.01 above is incorporated by reference into this Item
2.03.
Item 7.01 Regulation FD
On May 6, 2020, the Company provided an update related to the current business
environment as impacted by the novel coronavirus ("COVID-19"), which will also
be included in our Quarterly Report on Form 10-Q for the quarter ended March 31,
2020.
COVID-19 Developments
On January 30, 2020, the World Health Organization ("WHO") declared the outbreak
of COVID-19 a global health emergency and characterized the outbreak as a global
pandemic on March 11, 2020. In an effort to stem contagion and control the
COVID-19 pandemic, the population at large has severely curtailed day-to-day
activity and local, state and federal regulators have imposed a broad set of
restrictions on personal and business conduct nationwide. The COVID-19 pandemic,
along with the widespread public and regulatory response, has caused a dramatic
slowdown in U.S. and global economic activity. In the weeks following the
outbreak, non-essential businesses across the U.S. have been shuttered and
capital markets have experienced a significant spike in volatility and sell-off
in valuations. A record number of Americans have been furloughed or laid-off,
and unemployment claims have increased dramatically.
The global dislocation caused by COVID-19 is unprecedented and, while there is
broad hope for a medical advance that relieves the crisis and provides for a
quick return to normalized activity, it is not known how long the dislocation
will persist. In response to the COVID-19 outbreak and continuing uncertainties,
we activated our business continuity program to ensure our employees were safe
and able to continue serving our customers and their borrowers without
interruption. We have also sought to broadly assess the potential impact the
COVID-19 outbreak will have on the U.S. economy and housing market, and the
implications for the mortgage insurance market, and our business performance and
financial position.
Potential Impact on the U.S. Housing Market and Mortgage Insurance Industry
We expect the COVID-19 outbreak will have a direct effect on the U.S. housing
market, with existing homeowners facing challenges related to COVID-19, and the
volume and timing of future housing transactions negatively impacted as
potential sellers re-evaluate or postpone planned sales (housing supply) and
potential buyers reassess their ability and willingness to purchase homes
(demand). The market may be further constrained as transactions between
committed buyers and sellers encounter operational challenges, such as delayed
title searches due to the closure of local government offices.
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As a market (like all others) where valuation is driven by supply/demand
dynamics, this dislocation has the potential to impact housing prices. While it
is too early for us to estimate the magnitude of any potential housing price
decline (either nationally or in local markets), we have looked to the 2008
Financial Crisis as a point of comparison. In the wake of the 2008 Financial
Crisis, national home price indices declined by approximately 30% from their
pre-crisis peaks and remained severely dislocated for several years, causing
significant stress for homeowners, lenders, mortgage insurers and the broader
economy. We observe several differences in the current environment as compared
to that in the period leading up to and through the 2008 Financial Crisis that
we believe may lessen the relative housing price dislocation experienced in the
aftermath of the COVID-19 outbreak, including:
(i)  the generally higher quality borrower base (as measured by weighted average
FICO scores and loan-to-value ("LTV") ratios and tighter underwriting standards
(with, among other items, full-documentation required to verify borrower income
and asset positions) that prevail in the current market;
(ii) the lower concentration of higher risk loan structures, such as negative
amortizing, interest-only or short-termed option adjusted-rate mortgages being
originated and outstanding in the current market;
(iii) the meaningfully higher proportion of loans used for lower risk purposes,
such as the purchase of a primary residence or rate-term refinancing in the
current market, as opposed to cash-out refinancings, investment properties or
second home purchases, which prevailed to a far greater degree in the lead up to
the 2008 Financial Crisis;
(iv) the availability and immediate application by politicians, regulators,
lenders, loan servicers and others of a broad toolkit of resources designed to
aid distressed borrowers, including forbearance, foreclosure moratoriums and
other assistance programs codified under the Coronavirus Aid, Relief, and
Economic Security ("CARES") Act enacted on March 27, 2020; and
(v) the broader and equally immediate application of a massive amount of fiscal
and monetary stimulus by the federal government under the CARES Act and across a
range of other programs designed to assist unemployed individuals and distressed
businesses, as well as support the smooth functioning of various capital and
risk markets.
We also perceive the house price environment in the period leading up to the
current COVID-crisis to be anchored by more balanced market fundamentals than
that in the period leading up to the 2008 Financial Crisis. We believe the 2008
Financial Crisis was directly precipitated by irresponsible behavior in the
housing market in which home prices were driven to unsustainable heights (a so
called "bubble"). We see a causal link between the housing market and the 2008
Financial Crisis that we do not see in the COVID-19 outbreak, and we believe
this will further lessen the relative housing price dislocation experienced
going forward.
Notwithstanding the relative differences we observe in the current environment
as compared to the 2008 Financial Crisis, we do expect that housing prices will
be impacted by the COVID-19 outbreak. We also expect the mix of purchase and
refinancing mortgage originations will shift in the near-term due to the current
pandemic. We anticipate that purchase mortgage origination volume will be lower
in the aftermath of the COVID-19 outbreak than it otherwise would have been as
buyers and sellers postpone or more broadly reassess current and future
transactions, while we expect refinancing origination volume will increase
significantly as declining mortgage rates create refinancing opportunities for
existing borrowers.
Historically, U.S. mortgage insurance industry penetration of the purchase
origination market has been meaningfully higher than the refinancing origination
market, as new home buyers have generally required a greater degree of down
payment support, while refinancing borrowers have typically benefited from
increasing equity in their existing homes. In recent periods, however, mortgage
insurance industry penetration of the refinancing market has increased
significantly and the composition of industry new insurance written ("NIW")
volume between purchase and refinancing loans has shifted. Refinancing
originations accounted for approximately 30% of total mortgage insurance
industry NIW volume for the quarter-ended December 31, 2019, compared to
approximately 6% for the quarter-ended December 31, 2018. We expect this trend
to continue in the near-term as purchase origination volume slows and
refinancing origination volume increases, particularly as those borrowers who
capitalize on the emerging refinancing opportunity may not have significant
equity in their homes (either because they are refinancing so soon after closing
on a new home purchase or because of a decline in the appraised value of their
property) and may need to rely on mortgage insurance support to complete their
transactions.
In this context, we expect to see a decline in total U.S. mortgage insurance
industry NIW volume in the near-term, with the impact of declining purchase
origination volume partially offset by a dramatic increase in, and increasing
mortgage insurance penetration of, refinancing origination volume.
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Potential Impact on NMI's Business Performance and Financial Position
Operations
We had 327 employees at March 31, 2020, including 173 who typically work at our
corporate headquarters in Emeryville, CA and 154 who typically work from home in
locations across the country. In response to the COVID-19 outbreak, we activated
our business continuity program and instituted additional work-from-home
practices for our 173 Emeryville-based staff. We have transitioned our
operations seamlessly and continue to positively engage with customers on a
remote basis. Our IT environment, underwriting capabilities, policy servicing
platform and risk architecture have continued without interruption, and our
internal control environment and internal controls over financial reporting are
unchanged. We have achieved this transition without incurring additional capital
expenditures or operating expenses and we believe our current operating platform
can continue to support our newly distributed needs for an extended period
without further investment beyond that planned in the ordinary course.
New Business Production
We expect that the volume, composition, credit profile and pricing of our new
business production will change due to the COVID-19 crisis.
Our NIW has expanded significantly in past periods, driven by growth in the
overall mortgage insurance market and the success we have had further developing
our customer franchise. During the three-year period between January 1, 2017 and
December 31, 2019, we activated 340 new lenders, growing our franchise by over
45%, and successfully deepened our engagement with many existing customers. In
the same period, total U.S. mortgage insurance NIW volume increased by 19%
annually - peaking at $384 billion for the year-ended December 31, 2019.
Notwithstanding our recent gains and the customer success we have achieved, we
expect that our new business volume will decline in the near-term along with the
broader decline we anticipate in total U.S. mortgage insurance industry NIW
volume.
We have broadly defined underwriting standards and loan-level eligibility
criteria that are designed to limit our exposure to higher risk loans, and have
used Rate GPSSM to actively shape the mix of our new business production and
insured portfolio by, among other risk factors, borrower FICO score,
debt-to-income ("DTI") ratio and LTV ratio. At March 31, 2020, the weighted
average FICO score of our insurance-in-force was 751 and we had a 4% mix of
below 680 FICO score risk. Similarly, at March 31, 2020, the weighted average
LTV ratio (at origination) of our insured portfolio was 91.9% and we had a 10%
mix of 97% LTV risk. In the weeks since the outbreak of COVID-19, we have
adopted changes to our underwriting guidelines, including changes to our loan
documentation requirements, our asset reserve requirements, our employment
verification process and our income continuance determinations, that we expect
will further strengthen the credit risk profile of our new business production.
We set our premium rates based on a broad range of individual and market
variables, including property type, type of loan product, borrower credit
characteristics, and lender profile. Given the significant economic dislocation
caused thus far by the COVID-19 outbreak, and the uncertain duration and
ultimate global impact of this crisis, we have taken action to increase the
premium rates we charge on all new business production, in accordance with our
filed rates and applicable rating rules. We expect the pricing changes we have
instituted will increase the rate received on NIW volume in future periods and
further enhance the credit mix of our new business production.
Delinquency Trends and Claims Expense
We had 1,449 NODs in our primary insured portfolio as of March 31, 2020, which
represented a 0.38% delinquency rate against our 376,852 total policies
. . .


Item 9.01. Financial Statements and Exhibits
(d) Exhibits.

Exhibit No. Description 10.1 Amendment No. 1, dated as of May 6, 2020, to the Company's Credit Agreement , dated as of May 24, 2018, by and amon g the Compa ny, the lender parties thereto and JPMorgan Chase Bank, N.A. as administrative agent 99.1 NMI Holdings, Inc. Press Release Dated May 6 , 2020 104 Cover Page Interactive Data File (embedded within the Inline XBRL document)


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