California-based PMI Group Inc.’s (PMI) principal operating subsidiary PMI Mortgage Insurance Co. (“MIC”), announced yesterday that it has won approval from Freddie Mac (FRE) for PMI Mortgage Assurance Co., (“PMAC”) to directly sell mortgage guaranty insurance in some states.
The approval gives PMAC the right to sell insurance in states where PMI’s current mortgage operation doesn’t meet the minimum capital requirements.
Last month, the mortgage insurer got approval from Fannie Mae (FNM) as a direct issuer of mortgage guaranty insurance. The unit also obtained a waiver to continue writing new mortgage insurance business, even if it falls below the capital requirements of the Arizona state regulator. The approval from Freddie Mac runs through Dec. 31, 2011.
Mortgage insurers cover part of the loan amount lost by lenders when a home goes into foreclosure. Many mortgage insurers have pumped money into new units lately, as regulators tend to grant conditional approval for a capitalized unit to write new business, even if the parent company fails to meet regulatory capital standards.
In February, peer MGIC Investment Corp (MTG) got a similar approval from Freddie Mac, which gave subsidiary MGIC Indemnity Corp. the right to sell insurance in states where MGIC’s current mortgage operation doesn’t meet minimum capital requirements.
Estimate Revision
Over the last 30 days, one of the 7 analysts covering the stock has upgraded the estimate for the first quarter of 2010, while no downward revision was witnessed. Currently, the Zacks Consensus Estimate for the first quarter is operating loss of 95 cents per share, which would be up 32.8% from the year-ago quarter.
The absence of any downward estimate revisions for the first quarter indicates a likelihood of upward pressure on the performance of the stock in the near term.
With respect to earnings surprises, the stock has not been steady over the last four quarters, with two positive surprises. The average remained negative at 29.4%. This implies that PMI lagged the Zacks Consensus Estimate by 29.4% over that period.
The upside potential for the estimate for the first quarter, essentially a proxy for future earnings surprises, currently stands at 19.0% for PMI.
PMI Inc. has been suffering for quite some time due to increasing defaults and losses stemming from continued weakness in the U.S. housing and mortgage markets. The trend continued in the fourth quarter, which led the company to report greater-than-expected losses of $2.76 per share. The rise in delinquencies and defaults on loan payments may continue for longer than expected, leading to increased losses for mortgage insurers.
Read the full analyst report on “FRE”
Read the full analyst report on “PMI”
Read the full analyst report on “MTG”
Read the full analyst report on “FNM”
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