Private Mortgage Insurance Projects 2007 Loss

PMI Group Inc., a provider of residential mortgage insurance, said Monday that it expects to record a full-year loss at its U.S. mortgage insurance unit as the number and value of claims rose sharply in the first quarter.

PMI expects losses between $300 million and $360 million for the year at the U.S. unit. The company did not provide a specific reason for the anticipated losses for its insurance on home loans.

However, the organization separately reported a 3 percent drop in first-quarter earnings, as an increase in claims at the U.S. unit sent its net income down 2 percent.

The company also projected an expense ratio for the company of 20-23 percent. Expense ratio is a percentage of the sum of amortization of the firm’s deferred policy acquisition costs and other underwriting and operating expenses to net premiums written.

Mortgage insurance is mandatory for buyers who can’t make a down payment of at least 20 percent. However, in recent years, lenders have been willing to offer more second mortgage financing - a product known as a “piggyback mortgage” - in order to help borrowers reach that threshold.

Nevertheless, with the tightening of lending standards following the subprime (bad credit mortgage) lending meltdown, many industry experts believe we will soon see mortgage insurance make a comeback.

In electronic premarket trading, PMI shares fell 5 cents to $48.38 after closing Friday at $48.43 on the New York Stock Exchange.

SOURCE: Forbes