PMI Profit Hurt By Fairbanks Unit

PMI Profit Hurt By Fairbanks Unit

NU Online News Service, Oct. 23, 3:51 p.m. EDT?A big penalty to settle allegations of fraudulent activities by one of its holdings pushed third-quarter income down at mortgage insurance giant PMI Group Inc. by almost a third to $60.1 million, the company said.

During the comparable period last year net income was $89.3 million for the Walnut Creek, Calif.-based firm.

PMI's overall revenue for the third quarter was $288.9 million, nearly unchanged from $288.8 million posted one year ago. Net premiums written for the quarter rose 13 percent to $254.9 million compared to one year ago, the insurer said. Net premiums earned reached $249.9 million, a jump of nine percent from a year ago.

PMI, one of the largest mortgage insurers in the country, noted that the decline in its net income was largely due to troubles from Salt Lake City-based mortgage servicing company Fairbanks Capital, where PMI is the majority investor.

"We have 57 percent ownership in Fairbanks, and the decline in PMI's earnings and equity earnings was primarily a result of losses attributable to Fairbanks," said a PMI spokesman.

He noted that losses from Fairbanks were due to its $55 million pre-tax expense from a proposed settlement of potential civil charges by the Federal Trade Commission and the Department of Housing and Urban Development.

At issue were allegations that Fairbanks, which collects mortgage payments from homeowners with poor credit, imposed unnecessary fees and used abusive tactics in dealing with borrowers, according to the company. "HUD and FTC have been investigating Fairbanks. Allegations were misrepresentations and fraudulent activities towards borrowers," the company spokesman said.

The proposed settlement also requires changes in Fairbanks' operations as well as creation of a $40 million fund to help consumers allegedly harmed by Fairbanks.