PMI Group Inc., which provides mortgage insurance to homeowners nationwide, has filed for bankruptcy protection, according to NewsDay.com. The insurance provider, which is based in California, has apparently suffered significant financial losses connected with the turmoil the housing market has endured since its bubble burst in late 2007.
Reports indicate that PMI opted for Chapter 11 bankruptcy protection after regulators in Arizona seized two of its branch operations. It seems that the regulators got wind of an alleged scheme in which PMI planned to use government funds to write new mortgage policies.
Such a use of government funds, the regulators insist, would have been illegal, as PMI never got appropriate permission. PMI has apparently claimed that it would have used the funds to improve its financial situation by taking on new investments.
In bankruptcy court papers, PMI listed assets of $225 million and debts of $700 million, a situation apparently exacerbated by an operating loss of $329 million in 2011’s second quarter alone. The exorbitant losses stemmed, it seems, from an increase in delinquent mortgages for which PMI has had to pay its insured members.
The losses also spurred action from regulators: in August, regulators prohibited PMI from issuing new mortgage insurance policies, and both Fannie Mae and Freddie Mac have announced that PMI is no longer eligible to insure its mortgage loans.
While under bankruptcy protection, PMI reportedly plans to maintain coverage for those currently receiving benefits. However, depending on the proceedings of the case, the company may not be permitted to continue insuring mortgages in the U.S.
Most recently, after Arizona regulators took control of the two PMI branches located in that state, PMI noted that it would begin paying out claims at half their face value.
Generally speaking, the PMI bankruptcy could mean bad news for consumers. With one fewer mortgage insurer on the market, prices are likely to increase, according to some analysts. Individual homeowners may find that obtaining mortgage insurance becomes more difficult and expensive in the coming months.
PMI Group Inc. filed its bankruptcy case in Delaware. While its case is active, the company reports that it plans to continue operations as usual.
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