MORTGAGE LOAN COMPLIANCE®

Insurance regulators in Arizona have seized the main subsidiary of private mortgage insurer PMI Group Inc., which will begin paying claims at just 50 percent.

A statement on PMI's website says a court order, signed by an Arizona Superior Court judge on Thursday, gives Arizona's Department of Insurance full possession and control of the subsidiary. Beginning Monday, PMI says claims will be paid at just 50 percent, in lieu of a moratorium on claim payments. Meanwhile, PMI said it will "continue to support our customers' ongoing policy servicing needs, and loss mitigation programs."

The seizure follows heavy losses at PMI since the housing market bubble burst. Two months ago, state regulators ordered the Arizona-based subsidiary, PMI Mortgage Insurance Co., to stop selling new policies after it came under scrutiny because it didn't have enough money on hand to meet the requirements of regulations in that state.

Private mortgage insurance protects lenders from losses if a homeowner defaults and the lender doesn't recoup costs through foreclosure. The insurance costs the borrower a monthly fee, typically a set percentage of the total mortgage loan. Like other mortgage insurers, PMI has been able to sell profitable policies in recent years, but the gains from those sales hasn't outpaced losses from policies sold before the housing market collapsed. As flagging home prices have strapped borrowers, the company has had to pay more claims.

PMI's CEO, L. Stephen Smith, told analysts in early August that that company has seen a sharp rise in the number of previously denied claims that banks appealed and were able to get reinstated by producing better documents to back up them up.

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