Econintersect: The private mortgage insurer PMI has been seized by the state of Arizona. The state insurance department had stopped the company from issuing any more policies as of August 22 because the company lacked adequate reserves. The Arizona Department of Insurance now has “full possession, management and control of PMI,” the company said in a brief statement, according to Reuters.
Private mortgage insurance is required by most lenders when a mortgage does not have FHA guarantees in situations where the home buyer makes less than 20% down payment.Here is the company profile from Yahoo Finance:
The PMI Group, Inc., through its subsidiary, PMI Mortgage Insurance Co., provides residential mortgage insurance products to mortgage lenders and investors in the United States. The company offers various mortgage insurance products to meet the capital and credit risk mitigation needs of mortgage lenders and investors that protect them in the event of borrower default by reducing or eliminating the resulting credit loss to the insured institution. Its products include primary mortgage insurance that provides the insured with mortgage default protection on individual loans at specified coverage percentages; and modified pool insurance products primarily to the GSEs for regulatory capital relief or the reduction of mortgage default risk. The company, through its joint venture, CMG Mortgage Insurance Company, also provides mortgage insurance for loans originated by credit unions. Its customers include mortgage lenders, depository institutions, commercial banks, and investors, including the GSEs. The company markets its products directly through its sales force. The PMI Group, Inc. was founded in 1972 and is headquartered in Walnut Creek, California.
Here is the executive compensation information for the top executives, from Yahoo Finance:
Amounts are as of Dec 31, 2010 and compensation values are for the last fiscal year ending on that date. Pay is salary, bonuses, etc. Exercised is the value of options exercised during the fiscal year. Currency in USD.
Following the above link, the table of insider trading since the beginning of 2010 can be observed. Here is a summary of all transactions that did not state they were involved in option exercise:
- 50,000 shares, direct purchase at $1.77 (single transaction by CEO L. Stephen Smith)
- 103,849 shares, simultaneous indirect acquisition and direct disposition, all at $0 and all non open market (four transactions involving three individuals)
- 72,037 shares, disposition at $3.10 to $3.18 and all non open market
- 66,629 shares, disposition at $2.71 and $2.72 and all non open market
- 957 shares, disposition at $2.15 and all non open market
- 2,420 shares, disposition at $1.39 and all non open market
Econintersect has not been able to clarify from review of corporate documents exactly what the nature of the “non open market” transactions or what the nature of the simultaneous acquisitions and distributions were.
According to Thompson Reuters data at Yahoo Finance, insiders hold 9.37 million shares of stock (5.37% of float). However, the top five executives held only 193,902 shares, as listed in the following table from Yahoo Finance:
Major Direct Holders (Forms 3 & 4)
The total of salaries for the top five executives is $7.63 million. Yet, at the average stock price in 2010 of approximately $3.70, the five listed above only had about $700,000 at risk in company stock, less than 10% of their aggregate annual salaries. Who were the “sucker” insiders who held the other 8.7 million shares? It seems they just weren’t as “smart” as the top five executives.
Here are some quotes from the 2010 annual report for PMI, published early this year:
In spite of a generally improving economy, high unemployment and declining home prices continued to challenge the mortgage insurance industry and PMI in 2010. In the face of these economic headwinds, however, PMI enhanced its capital and liquidity, reduced its losses and loss adjustment expenses (total incurred losses), and continued to create the conditions necessary for its return to long-term profitability.
We are pleased with the high quality of PMI’s new insurance written in 2010. As the year progressed, we saw a modest shift back to private mortgage insurance from government insurance programs, such as the Federal Housing Administration (FHA).
We believe that private capital in the form of private mortgage insurance is a model that works. Our value proposition has been validated through the most stressed market conditions seen since the Great Depression. Private mortgage insurance represents highly regulated, countercyclical capital that has reduced losses for our policyholders and, in doing so, has proven its integral role to homeownership.
In closing, I believe PMI made measurable and significant progress in 2010 towards stabilizing our Company, mitigating losses, booking high-quality new business and enhancing our capital and liquidity. As the Federal Government continues to take the necessary steps to stabilize and reform the housing market, PMI is well positioned to be an integral part of that effort. PMI continues to have an extraordinary group of professionals committed to our mission, vision and values. Also, I would like to thank Wayne E. Hedien for his many years of exemplary leadership and service on PMI’s Board of Directors. Finally, I thank you, our shareholders, for your continued confidence in PMI.
These are innocuous statements signed by a CEO who had another $2.88 million to collect in salary if he could keep a zombie walking for another year and only about $200,000 or so in stock value at risk if he failed. And what was Mr. Smith’s motivation to spend $88,500 to buy more stock on May 10, 2011? Econintersect has found no further information in that regard.