From the website of PMI Mortgage Insurance: [Hat tip L!]
To all policyholders, insureds, and servicers:
On August 19, 2011, PMI informed you of regulatory decisions that impacted our ability to write new commitments of insurance. Specifically, PMI Mortgage Insurance Co. (“PMI”) was required to cease writing new commitments.
Today, we are informing all policyholders, insureds, and servicers of loans insured by PMI that the Director of the Arizona Department of Insurance obtained an “Order Directing Full and Exclusive Possession and Control of Insurer” (the “Order”) with respect to PMI. Under the Order, the Arizona Department of Insurance now has full possession, management and control of PMI.
Effective October 24, 2011 and pursuant to the Order, in lieu of a moratorium on claim payments, the Director is instituting a partial claim payment plan. Claim payments will be made at 50%, with the remaining amount deferred as a policyholder claim.
This is the order from the Arizona Supreme Court:
Order to take full and exclusive possession and control pursuant to A.R.S. 20-172, and pending the hearing and determination of the application for appointment of Receiver and Order to Show Cause to be filed in this matter:
Now, therefore, it is ordered that Christina Urias, Director of the Department of Insurance, is directed to take possession and control of PMI Mortgage Insurance Co. (“PMI”), pending a hearing on the appointment of a receiver for this insurer, and with the full and exclusive power of management and control of PMI, with power to continue or to discontinue the business of PMI, to stop or limit the payment of obligations of PMI, to employ any necessary assistants, to execute any instrument in the name of PMI, and to commence, defend and conduct in the PMI name in any action or proceeding in which PMI may be a party.
Done in open court this 20th day of October, 2011.
According to USAToday yesterday: (no oxymoron intended)
PHOENIX (AP) – Insurance regulators in Arizona have seized the main subsidiary of private mortgage insurer PMI Group, which will begin paying claims at just 50%.
The seizure follows heavy losses at PMI since the housing market bubble burst. Two months ago, state regulators ordered the Arizona-based subsidiary, PMI Mortgage Insurance Co., to stop selling new policies after it came under scrutiny because it didn’t have enough money on hand to meet the requirements of regulations in that state.
It will be interesting to see if claims being paid at 50% affects lender stocks on Monday.
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Do those paying premiums to PMI have to continue to pay or are they off the hook for PMI that does not pay on their behalf?
sho off-
I’m assuming folks are stuck paying their premiums. It’s a “homeowners pay – lenders benefit” deal. The lenders are “protected” by PMI, not the homeowner, so it shouldn’t affect homeowners. This could be, however, a big hit for the lenders.
Hmmmmm. I’m not so sure – would be very curious to see the contracts in question here. Does the consumer sign any kind of arrangement with PMI, or is it just the bank billing through the consumer?
Even if the latter (admittedly a harder case), if PMI is not going to be paying claims and the consumer is going to be on the hook for moneys not paid, seems like you would at the very least have some kind of equitable estoppel argument here – the homeowner should not be being forced to pay for a service that is not going to be received, whether by PMI itself or by the bank. (Neither PMI itself nor the mortgage servicer should be able to take money to provide or buy insurance for the customer and then not actually provide the insurance in question.)
The more I think about this, the more curious I am – if the banks are still collecting fees for insurance that will not be honored, are they paying PMI anyway, or just keeping the money? Sounds like cause for a class action.