Recent Seizure Of Two Subs After Taking Beating For Underwriting Too Many Crappy Home Loans Pushes Mortgage Insurer To File For Ch. 11 Protection

The Associated Press reports:

• Private mortgage insurer PMI Group Inc. is seeking shelter from creditors under the Chapter 11 bankruptcy code after the seizure of two of its subsidiaries by regulators in Arizona.



• The company said Wednesday that it filed a petition for relief with the U.S. Bankruptcy Court in Delaware, but will continue operating as usual. PMI intends to use bankruptcy protection to assess its options in light of the action taken by the Arizona Department of Insurance.



• On Oct. 20, insurance regulators in Arizona seized PMI’s main subsidiaries in the state, PMI Mortgage Insurance Co. and PMI Insurance Co., because the companies did not have enough money on hand to meet state requirements.



• The state obtained an order from an Arizona Superior Court judge to take over the PMI subsidiaries. Shortly after, PMI said it would begin paying claims at just 50 percent.

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• The seizure of PMI’s subsidiaries followed heavy losses at the company since the housing market bubble burst. Private mortgage insurance protects lenders from losses if a homeowner defaults and the lender doesn’t recoup costs through foreclosure. The insurance costs the borrower a monthly fee, typically a set percentage of the total mortgage loan.



• Like other mortgage insurers, PMI has been able to sell profitable policies in recent years, but the gains from those sales hasn’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.

For the story, see PMI Group files for Chapter 11 bankruptcy protection, cites subsidiaries’ seizure by Arizona.