PMI Posts $274 Million Loss; Borrower Defaults Rising Quickly

The PMI Group, Inc. (PMI) said Monday morning that it lost $274 million, or $3.37/share, during the first quarter as its mortgage insurance operations in the U.S. continued to reel from increasing borrower defaults and rising loss severity. The first quarter loss compares to earnings of $102 million, or $1.16/share, in the year-ago period. PMI’s U.S.-based mortgage insurance business lost $172.5 million during the first quarter, the company said, while it also wrote off $88 million of its investment into troubled bond insurer Financial Guaranty Insurance Company; the FGIC write-off represented that last of PMI’s investment into the bond insurer, which has seen its ratings slashed by all three rating agencies. Losses tied to troubled borrowers outpaced growth in net insurance premiums earned during the first quarter, PMI said. Net premiums grew by 7.2 percent to $207.8 million, compared to $193.8 million in the first quarter of 2007; but this growth was more than offset by paid claims that far more than doubled their year-ago totals, amounting to $162.6 million during Q1. Rising borrower defaults PMI said that 8.78 percent of its 794,323 primary policies in force were in some stage of default by the end of the first quarter, a jump of 10.7 percent relative to the fourth quarter — underscoring that the number of troubled homeowners continues to grow. Flow-only defaults registered a more modest 7.57 percent rate of default, while structured transactions (i.e., bulk) posted a rate of 15.14 percent; both were up from quarter-ago and year-ago defaults. The rest problems, however, appear to be in key loan segments. PMI provided details on primary default activity by loan types, and some of the numbers are downright scary. 42.95 percent of 2/28 hybrid ARMs were in some stage of default at the end of the first quarter. That’s up from 18 percent one year ago — and no, it isn’t a misprint. Nearly 21 percent of PMI-insured subprime loans are in default — not at all surprising, given the numbers we’ve seen from outfits like Countrywide Financial Corp. (CFC) lately — but compare that to a default rate of 17.5 percent for Alt-A mortgages. Payment option ARMs are approaching a near-20 percent default rate, too, according to PMI. These are default rates that are for the most part increasing dramatically, too. For example, interest-only mortgage defaults hit 15.04 percent in Q1, PMI said, up 37 percent in just one quarter. Alt-A deliquencies are up 26 percent in just one quarter. Defaults on ARMs other than 2/28s are up 23 percent in just one quarter. For more information, visit http://www.pmigroup.com. Disclosure: The author was long CFC, and held no other relevant positions, when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.