Insurance regulators in Arizona have seized the main subsidiary of private mortgage insurer PMI Group Inc., which will begin paying claims at just 50%.
The seizure follows heavy losses at PMI since the housing market bubble burst. Two months ago, state regulators ordered the Arizona subsidiary, PMI Mortgage Insurance Co., to stop selling new policies after it came under scrutiny because it didn't have enough money on hand to meet the requirements of regulations in that state.
A statement on PMI's website says a court order, signed Thursday by an Arizona Superior Court judge, gives Arizona's Department of Insurance full possession and control of the subsidiary. Beginning Monday, PMI says claims will be paid at 50% in lieu of a moratorium on claim payments. Meanwhile, PMI said it will "continue to support our customers' ongoing policy servicing needs, and loss mitigation programs."
Private mortgage insurance protects lenders from losses if a homeowner defaults and the lender doesn't recoup costs through foreclosure. Borrowers pay a monthly fee, typically a set percentage of the total mortgage loan, for the insurance. Like other mortgage insurers, PMI has been able to sell profitable policies in recent years, but the gains from those sales haven't outpaced losses from policies sold before the housing market collapsed. As flagging home prices have strapped borrowers, the company has had to pay more claims.
The company's shares have traded below $1 since late July, closing Friday at 31 cents. PMI shares topped $50 in 2007. Since then, the Walnut Creek, Calif., company has posted more than $3.5 billion in losses because of claims paid out on foreclosed homes.