Arizona insurance regulators moved too quickly to take over PMI Mortgage Insurance Co. because the unit still has $2 billion in cash and liquid investments and can keep paying policyholder claims until 2014, PMI Group said in court papers filed in state court in Phoenix.
PMI Group and state regulators will appear today before Superior Court Judge Richard J. Gama, who will decide whether to uphold the interim seizure.
Arizona’s top regulator is trying to dismantle PMI Mortgage before anyone “has a chance to be heard and -- much like Humpty Dumpty -- thereby render it impossible for anyone to put PMI back together again,” PMI Group said in court papers dated Oct. 28.
Arizona Director of Insurance Christina Urias took control of the unit last month on an interim basis until a formal hearing could be held on the company’s future, according to court papers. Urias directed claims to be paid at 50 cents on the dollar after losses on mortgage defaults drained capital. The operation was already prohibited from selling new coverage.
After the takeover, PMI announced the hiring of financial adviser Evercore Partners Inc. (EVR) and the law firms Sullivan & Cromwell LLP and Young Conaway Stargatt & Taylor LLP, to help restructure the Walnut Creek, California-based insurer. PMI has posted 16 straight quarterly losses.
PMI Group is seeking to regain control of the unit until at least January, when a court hearing to confirm the seizure is scheduled.
Lawyers for Urias defended the interim seizure, saying in their court filings that PMI’s proposal to correct its financial problems and pay claims relied partly on “an accounting treatment” that the insurance department could not accept.
PMI Group told Arizona regulators on Oct. 19 that it failed to line up new investors willing to supply $150 million to $200 million needed to start writing policies again through a new venture. The next day Urias won interim court permission to seize PMI Mortgage.
The worst U.S. housing crash in seven decades has pressured mortgage insurers, which pay lenders when homeowners default and foreclosures fail to recoup losses. U.S. home prices dropped 4 percent in August from a year earlier as the housing market struggled to stabilize, the Federal Housing Finance Agency said last month.
Short on Capital
Other mortgage insurers have faced financial difficulties because of the housing collapse.
Triad Guaranty Inc. stopped selling policies when capital ran short in July 2008, and was ordered by a state regulator to defer 40 percent of claims payments because of “uncertainty” over whether it will meet its obligations.
Fannie Mae, the government-controlled mortgage finance company, suspended a unit of Old Republic International Corp. as an approved guarantor of home loans in July after it failed to meet capital standards.
PMI had outstanding debt with more than $700 million in principal as of June 30, according to regulatory filings. The insurer doesn’t have the financial resources to pay the principal on 4.5 percent notes maturing in 2020, 6 percent securities due in 2016 and 6.625 percent debentures due in 2036, according to a filing last month.
The case is State of Arizona v. PMI Mortgage Insurance Co., CV2011-018944, Arizona Superior Court, Maricopa County, (Phoenix).
-- With assistance from Noah Buhayar in New York. Editors: Fred Strasser, Peter Blumberg