Updated on November 28, 2011
PMI Group, the nation’s third largest private mortgage insurer, filed for Chapter 11 bankruptcy on November 23, 2011, listing $736 million in debt. In October 2011 the company was seized by the Arizona Department of Insurance which now has full possession, management and control of the company.
PMI Group warned policyholders in August 2011 that it was $320.3 million below the minimum capital required by state law. PMI Group was instructed by the Arizona Department of Insurance in October 2011 to:
- halt sales of new policies;
- stop making interest payments on $285 million in surplus notes; and
- submit a plan outlining how it will meet its obligations to existing policyholders.
first tuesday take: Steve Smith, president and CEO of PMI Group, made astute observations in 2005 about a perfect storm of “…new loan products, stretched borrowers, less equity, geographical concentrations: Each of these developments in isolation might not be sufficient to cause concern…These developments, however, have not occurred in isolation.”
Ironically, it seems the company did not follow its own CEO’s good instincts.
It is not in style to suggest the government should have pulled an AIG and bailed out PMI Group. However, if we are ever going to eliminate Fannie Mae and Freddie Mac and privatize the mortgage industry that is precisely what should have happened. [For more information regarding Fannie Mae and Freddie Mac, see the March 2011 first tuesday article, Some dread the demise of Fannie and Freddie.]
Clearly, the government does not support the restructuring of the private mortgage insurance (PMI) industry. More important than GM or Chrysler, PMI Group directly competes with the government. Thus, their downfall only serves to bolster our dependence on Freddie and Fannie. [For more information regarding mortgage insurance, see the September 2011 first tuesday article, Potential future increases for PMI and guarantee fees and the October 2011 first tuesday article, FHA, PMI or neither?]
Re: “PMI Group Unit Seized by Arizona Regulator, to Pay Out 50%” from Mercury News
“The PMI Group: Main AZ subsidiary low on capital, could shut down” from the Phoenix Business Journal