By Mike Colpitts
Mortgage insurance giant PMI Group has been ordered to stop writing mortgage insurance policies by state regulators. Technically, PMI Inc’s two Arizona subsidiaries were placed under regulatory supervision by the Arizona Department of Insurance, where its main operations are headquartered.
Then Fannie Mae announced it will no longer purchase home mortgages from the company beginning Sept. 16 th. Fannie said the delay is intended to provide a period for pipeline clearance. PMI’s ability to raise additional capital was severely damaged by Fannie Mae’s suspension of the mortgage insurer, downgrades by credit rating agencies, including Standard and Poor’s and growing financial losses.
The company insures mortgages and paid lenders when homeowners default on their home loans. PMI has suffered through a series of corporate downgrades to its stock on the New York Stock Exchange, which may be delisted because its price has hovered under $1 for more than 30 days. The stock traded at a high of around $50 at the height of the real estate bubble.
PMI Group has also experienced a series of economic hardships as a result of the foreclosure crisis reporting a second quarter net loss of $1.76 a share. Mortgage insurance premiums written in the second quarter were $124.8-million, down 18% from the prior quarter.
The growing losses provide a clear road to recovery may not be possible for the giant mortgage insurer, which once insured more U.S. mortgages than any other underwriter. Losses escalated 34% in the second quarter from year ago levels as homeowners increasingly are foreclosed on homes, and the mortgage insurer is forced to payoff investors.
The losses totaled $485.1 million in the second quarter, according to public filings. The higher losses came as a result of more foreclosures, higher loss adjustments incurred and greater amortization losses leading to the company’s downfall.
In early August, MIC, a division of PMI policyholder’s position grew to $320.3 million below the minimum required by Arizona law to stay in business. PMI warned that state regulators could take steps to initiate bankruptcy proceedings or liquidation of MIC, which would lead to larger losses.
The company issued a statement saying that it may not be able to raise additional capital to make good on losses. “We may not be able to raise additional capital or achieve capital relief in order to restore our ability to continue to write new insurance business. We are exploring capital alternatives that, if successful, could provide capital relief to MIC or capital to other insurance subsidiaries, potentially including PMAC, so that they may replace MIC as our primary writer of new insurance.”