October 18, 2007 / 11:31 AM / 12 years ago

UPDATE 3-PMI Group sees Q3 loss on housing, mortgage fallout

(Recasts, adds analyst comments, updates share movement)

By Shikhar Balwani

BANGALORE, Oct 18 (Reuters) - Mortgage insurer PMI Group Inc PMI.N, hit by continued weakness in the housing and mortgage sectors and the fallout in credit derivative markets, expects a third-quarter loss and pulled its previous outlook for 2007 losses related to the problems, sending its shares to a year low.

“The credit side on domestic mortgage insurance is the problem and there is no clarity on how bad that can get right now,” Geoffrey Dunn, an analyst with Keefe, Bruyette & Woods said by phone.

Dunn said he downgraded the shares last week, and added that given this lack of clarity he would keep a “market perform” rating on the stock.

Shares of the second-largest mortgage insurer in the United States were down 12 percent at $23.52 in afternoon trade on the New York Stock Exchange. Earlier in the session they touched $22.81, down 56 percent from their 52-week high back in early February.

In a statement, the company said it sees a net loss of about $1.05 a share in the third quarter, primarily due to losses at its U.S. mortgage insurance operations and a mark-to-market adjustment at its unconsolidated unit FGIC.

Analysts were expecting a profit of 75 cents a share for the quarter, before exceptional items, according to Reuters Estimates.

PMI Group expects losses of about $350 million for its U.S. mortgage insurance operations in the quarter.

The amount of estimated losses the company said it would take from the operations has risen over the past several months. Back in April it expected losses to be between $300 million and $360 million for 2007.

Total losses include paid claims, loss adjustment expenses and additions to the reserve for losses.

In its statement, PMI said credit conditions also hurt the insured credit derivative portfolio of FGIC Corp, an insurer of public finance bonds and structured securities, in which PMI is the lead strategic investor with a common equity ownership of 42 percent.

At Sept. 30, FGIC conducted a fair value review of its outstanding credit derivative contracts and estimated that mark-to-market adjustments will result in an unrealized loss of about $206 million, pretax, in the third quarter, PMI said.

However, Dunn said the FGIC mark-to-market adjustments were irrelevant and had no fundamental implications.


On Wednesday, MGIC Investment Corp (MTG.N), the largest U.S. mortgage insurer, posted a third-quarter loss after a big charge, hurt by rising homeowner defaults, sending its shares down more than 15 percent during regular session trading.

Mortgage insurers provide private mortgage insurance for residential first mortgage loans, which enable people to purchase homes with less than a 20 percent down payment. They guarantee the lender will be repaid even if the borrower defaults.

MGIC’s results on Wednesday also pulled down PMI’s shares.

In afternoon trade on Thursday, shares of MGIC Investment were down about 7 percent at $24.38, while Radian Group Inc (RDN.N), the third-largest mortgage insurer, fell 5 percent to $16.48.

PMI’s second-quarter earnings also fell short of analysts’ expectations. The company is scheduled to report third-quarter results on Oct. 30.

Radian Group is scheduled to report on Nov. 1. (Reporting by Shikhar Balwani and Manish Gupta in Bangalore)

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