PMI Mortgage Insurance Co. (PMI) said on Tuesday that a regulatory legislation passed in Arizona will bring additional flexibility to mortgage-insurance firms. The new legislation could provide regulatory relief to these companies by granting Arizona’s Department of Insurance (DOI) discretionary authority over mortgage insurers if they do not meet the state’s required minimum policyholder position (MPP) to write new business.
Although PMI is licensed in 50 states and operates a subsidiary in Europe, it domiciled in Arizona, meaning its primary insurance regulator is that state’s government. Thus, the company will also enjoy this additional flexibility.
Legislators and the DOI recognized that while MPP is a factor, it should not become the sole determinant in evaluating mortgage insurers’ ability to write new business. The reform, effective from November, can provide necessary relief to mortgage insurers as they restructure portfolios and rebuild capital levels.
Presently, 16 states have mortgage insurance statutes or regulations that prescribe either a maximum risk-to-capital ratio or MPP. The remaining 34 states do not have explicit minimum capital requirements.
We believe that this guidance to the mortgage insurance industry should enable it to write new business and act as a significant step towards stabilizing the US housing market.
While PMI may benefit from the recent US regulatory moves and positive rating actions taken by Moody’s and S&P in June, we expect continuous losses in the coming quarters till the housing situation bottoms out. Also, the rise in delinquencies and defaults on loan payments may stretch longer than expected, leading to increased losses for mortgage insurers. Thus, we do not expect any significant improvement in its valuation in the near future.
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