PMI Group Inc., a mortgage insurance company, was seized by the state of Arizona last week, and has begun to pay out claims at only 50 percent.
The California based company’s main unit was taken over by the Arizona insurance regulator, which is now in charge of managing and controlling the subsidy. The takeover follows a decision two months ago by Arizona state regulators to stop allowing PMI Mortgage Insurance Co. to sell new policies.
The branch of PMI seized sells private mortgage insurance, which is purchased in case a homeowner defaults on his mortgage and the lender is unable to get his money back through foreclosure.
Ana Matos, a senior mathematics major who spent the past summer interning for an insurance company, notes that since the housing bubble burst, the mortgage industry has been unsteady.
“The recent housing market crash showed that the mortgage business is a risky one,” said Matos.
Reports show that despite turning a profit on their more recent business, PMI Group has been unable to make up for losses from the collapse.
“In terms of managing risk, it is not smart for a company to take on more than they can handle,” said Matos.
Marketing and Supply Chain double major Greg Spina usually prefers less government interference in business, but when it comes to risky tactics like those of PMI, he is happy to see the states get involved.
“Generally I am not a big supporter of the government getting involved with business. But in this situation it seems like it may be necessary considering the company has been failing to uphold its commitment to its policyholders,” said Spina.
Ever since the housing crash, the government has kept a much closer eye on companies’ amount of risk, and according to Matos, the companies need to be smart and responsible about the amount of questionable investments they take.
“If a company wants to maintain a good S&P rating they need to err on the conservative side,” said Matos.
In 2007 PMI’s shares were over $50 each, but as of Thursday night they sat at only a few pennies and were on hold.