PMI losses grow, says outlook improves

WALNUT CREEK, Nov 04, 2008 (Contra Costa Times - McClatchy-Tribune Information Services via COMTEX) -- PMI | Quote | Chart | News | PowerRating -- PMI Group Inc. suffered a third-quarter loss that was far larger than the flood of red ink that drenched PMI's balance sheet a year ago, the mortgage insurer said Monday.

PMI lost $229.4 million, or $2.81 a share, on revenues of $225.2 million, which was 159 percent larger than the prior-year loss of $86.8 million, or $1.04 a share. Revenues fell 6.1 percent.

Walnut Creek-based PMI had been expected to earn $2.42 a share, based on a Bloomberg survey of analysts.

PMI said it wrote a smaller amount of new premiums to protect lenders in case borrowers default on mortgages that were not underpinned by a substantial down payment. PMI also said it suffered investment losses of $49.9 million, compared with a year-ago gain of $712 million from investments.

Despite the deluge of losses for PMI, the company's report hinted that the mortgage meltdown may be starting to abate.

For one thing, PMI said that it expects paid claims for its U.S. mortgage insurance operations will range between $850 million to $900 million for all of 2008. That is a reduction from the previous company prediction of paid claims for domestic mortgage insurance that ranged from $900 million to $975 million.

That suggests the insurer sees a slowdown to the calamities that have tormented the housing and mortgage markets. Although PMI's loss was worse than expected, the company's shares rose 10 cents, or 4 percent, to finish at $2.59 on

Monday.

On the other hand, PMI did report an increase in loans that were in default. As of Sept. 30, PMI-insured loans in default totaled 93,670. That was up 15.8 percent from the total at the end of June.

Nevertheless, PMI is seeing some positive trends, L. Stephen Smith, PMI's chairman and chief executive, stated during a conference call with analysts.

"While there is an increase in defaulted loans, we did see positive loss development trends that partially counteracted the increase," Smith said.

Among those trends: the rate of notices of default reported from California and Florida -- perhaps the two worst housing markets in the nation -- have begun to stabilize, Smith told the analysts.

But plenty of challenges remain to overcome for PMI and others associated with the housing market, according to a research note issued Monday by Keefe, Bruyette & Woods investment analysts Nathaniel Otis and William Clark.

"Although the company's third quarter earnings were better than we expected from an income statement standpoint," the Keefe, Bruyette analysts wrote in the research note, "the overall number of delinquent loans was slightly ahead of our projection, and delinquency rates were up across the board."

Those weaknesses suggest that the overall gloomy picture for housing could persist for a while.

"Nothing in the company's earnings release materially changes our outlook for continued increases in delinquency rates through the start of 2009, and therefore, future credit deterioration into 2009 and beyond," the Keefe, Bruyette & Woods report stated.

George Avalos covers jobs, economic development, commercial real estate, finance and oil companies. Reach him at 925-977-8477 or gavalos@bayareanewsgroup.com.

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