Walnut Creek-based PMI Group filed for bankruptcy Wednesday, listing debts of $736 million resulting from the meltdown of a housing market that remains weak.
The company, which insures mortgages when borrowers make small down payments, was forced into bankruptcy when a judge upheld the takeover by Arizona state regulators of PMI’s primary units to insure mortgages.
“Continued high unemployment in the United States and the slow economic recovery in U.S. residential and mortgage and housing markets” have contributed to PMI’s losses, L. Stephen Smith, PMI’s CEO, said in a court filing.
PMI pays lenders after an insured homeowner defaults and a foreclosure fails to recoup enough to cover the lender’s losses. Over the 12 months that ended in June, it lost $727.1 million and generated revenue of $762.9 million.
PMI has lost money for 16 straight quarters, including a $1.01 billion loss in the October-December period of 2007. The last time PMI turned a profit was in the April-June quarter of 2007.
Arizona regulators took control of PMI Mortgage Insurance and PMI Insurance in August. Neither of those companies filed for bankruptcy but were ordered to cease writing new policies, which undermined a vital revenue stream for PMI.
The regulatory seizure also unleashed a new financial squeeze for PMI because takeover allowed lenders to seek immediate payment in full of the financing. In this case, about $736 million in notes were due in short order.
PMI, in a last-ditch attempt to dodge bankruptcy, asked an Arizona judge to overturn the seizure by the state’s Insurance Department. But earlier this week, the judge denied PMI’s gambit, leaving the company with few escape routes.
The company filed for Chapter 11 in a quest to reorganize its finances, listing assets of $225 million. It said it hopes the bankruptcy filing will enable the company to assess its options following the regulatory actions.
Mortgage insurers, including PMI, have been able, in recent years, to capture decent profits in providing mortgage insurance to cover lenders. But PMI has been battered by losses because of mortgages it insured before the collapse of the housing market.
The slump in home prices has erased equity and shoved some borrowers to the brink of foreclosure.
“There are still an extremely high number of underwater loans,” said Jeffrey Michael, director of the Stockton-based Business Forecasting Center at University of the Pacific. “The worst of the price declines are over. But foreclosures continue to be a problem. There is a very long road before we have a normal housing market.”
By George Avalos
Contra Costa Times
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