Mortgage insurer The PMI Group Inc. warned investors on Thursday that it may be unable to continue selling new policies and could shut down.
The news sent shares of the Walnut Creek, Calif.-based company plunging to their lowest point in more than two years.
On a day when the broader markets were battered by economic concerns, the stock closed down 47 cents, or 53.4 percent, at 41 cents. Shares were last that low in March 2009, and had changed hands as high as $4.68 in the past 52 weeks.
PMI shares topped $50 a share in 2007, before the housing bubble burst. But the company has posted more than $3.5 billion in losses since 2007 as it paid out claims on foreclosed homes.
That includes a loss of $134.8 million, or 83 cents a share, for the three months ended June 30, which the company reported on Thursday.
Now, the company's main subsidiary, PMI Mortgage Insurance Co., or MIC, doesn't have enough money on hand to meet the requirements of regulations in Arizona, where it is based. The company said the state's insurance department may as a result move to stop it from selling new policies in all states and move to rehabilitate or liquidate the unit.
PMI has known such action was a possibility for some time, and as a backup plan it set up another subsidiary, called PMI Mortgage Assurance Co., that could sell mortgage insurance in certain states.
However, the company warned Thursday that the approval to sell policies on mortgages backed by Fannie Mae and Freddie Mac depends upon MIC continuing operations. PMI said "there can be no assurance" that the two government-sponsored mortgage buyers will allow the PMI Mortgage Assurance to continue selling policies.
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 during the bubble.
Compounding the issue is 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, CEO L. Stephen Smith said during a conference call on Thursday,
"Our financial results and the trends underlying them present us with serious challenges and a shortened timeline to address them," Smith said.
He said the company is working with a financial adviser to search for ways to raise capital.
"We are concentrating on capital alternatives that, if successful, could provide capital or capital relief to MIC or could provide capital to other subsidiaries so that they may replace MIC as our primary writer of new insurance," the CEO said. "All of the alternatives are complex and require the commitment and cooperation of our key constituents."
The company stopped short of saying it may file for bankruptcy protection, but Chief Financial Officer Donald Lofe said that such a move may be considered