Mortgage insurer seeks bankruptcy protection

PMI Group Inc., which insured hundreds of mortgages on Long Island each year, has become the latest victim of the historic housing collapse that is hobbling the U.S. economy.

Private mortgage insurer PMI said Wednesday it is seeking shelter from creditors under Chapter 11 bankruptcy after Arizona insurance regulators seized two of its subsidiaries. The company filed a petition for relief with the U.S. Bankruptcy Court in Delaware but will go on operating as usual. PMI intends to use bankruptcy protection to assess its options.

PMI had already been ordered by regulators to stop issuing new policies in August, according to the company's website. Arizona regulators had put the company under their supervision, saying PMI reported a $329 million net loss for the second quarter. Losses stemmed from increased payouts on claims over delinquent loans, the company reported. Mortgage finance giants Fannie Mae and Freddie Mac then barred PMI from insuring their loans.

PMI is one of five major companies in its field, said Michael McHugh, a Melville lender who heads the Empire State Mortgage Bankers Association. Having another firm sidelined will increase the cost and difficulty in getting loans, he said: "It means less competition. All in all, I don't think this is good news for consumers."

On Oct. 20, Arizona regulators seized PMI's main subsidiaries in the state, PMI Mortgage Insurance Co. and PMI Insurance Co., because the companies did not have enough money on hand to meet state requirements.

Shortly after, PMI said it would begin paying claims at just 50 percent.

With contributions from The Associated Press.