Despite Major Problems at PMI, FBR Calls MI a ‘Market Perform’

Mortgage & Real Estate

On Friday morning, the day after the share price of PMI Group tumbled by 50%, FBR Capital Markets labeled the stock a ‘market perform’ but said it is dropping its expectations on the nation’s second largest mortgage insurer.

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In a note to investors, FBR writes, “In the meantime, we are dropping our price target from $2.50 to $0.50 to reflect the erosion of book value due to the DTA write-down and greater-than-anticipated net losses, which offset $0.93 of book value accretion we were expecting from the sale of the Australian business.”

On Thursday, PMI reported a $135 million loss for 2Q and warned that it could be forced to stop selling new coverage. The firm has posted roughly $3 billion in losses since the fourth quarter of 2007.

It noted that a backup plan intended to allow the company to stay open for business if its primary subsidiary falters had “no assurance” of continuing to work.

PMI’s risk-to-capital ratio now stands at 58.1:1, and far exceeds the regulatory requirement of 25:1.

FBR notes the capital problem “can restrict the company from writing any new business until the ratio is resolved.”

It adds that “For a company that had been lagging its peers already, heading into runoff will exacerbate an already difficult situation unless its capital situation can be resolved…We believe much of the discussion on PMI moving forward will be less on delinquency trends and more focused on solving the company’s capital position.”

According to National Mortgage News and the Quarterly Data Report, PMI has a risk-in-force market share of 16%.

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