Principal Residential Mortgage, Inc. To Focus On Retail Consumer Lending via Phone and Online

Business Wire, Jan 29, 2003

Business Editors

DES MOINES, Iowa--(BUSINESS WIRE)--Jan. 29, 2003

Mortgage Direct will be the centralized loan origination and

fulfillment center for retail customers;

traditional branch offices close

Principal Residential Mortgage, Inc., the residential mortgage company of the Principal Financial Group(R) (NYSE:PFG), announced today the decision to focus its retail consumer loan origination business within its Mortgage Direct operation, which originates loans across the nation via phone and online. This change entails ceasing loan origination in traditional retail branch offices and closing these offices by February 28, 2003. The company will also continue to concentrate on growing its Correspondent, Wholesale and Servicing businesses.

The change is expected to be transparent to customers. Loans currently in process in retail branch offices will be handled as usual, with as many as possible being closed by the end of February 2003. This step has no impact on customers with existing loans. Loans remain intact and payments should be made as usual.

"Consumers are increasingly more comfortable with and desire a direct loan origination experience. They also recognize the cost advantages associated with getting their loan via the phone or online as demonstrated by the more than 300 percent growth experienced by our Mortgage Direct operation in the first nine months of 2002," said Paul Bognanno, president and chief executive officer of Principal Residential Mortgage, Inc. "In that same period, loan production was up 17 percent, with 90 percent of this growth coming from our Correspondent, Wholesale and Mortgage Direct distribution channels. This change enables us to direct our resources to higher growth, higher profitability and lower cost distribution channels, which is good for the organization, for customers and for shareholders," Bognanno said.

"Without a doubt, this step positions Principal Residential Mortgage to continue to build on its proven track record of delivering high quality home loans and loan servicing to customers across the U.S.," Bognanno said.

In closing the traditional retail branch offices, approximately 500 employees in 78 locations will be displaced. "This was clearly a very tough decision because of the impact on employees," said Bognanno. "We worked extremely hard to time the decision during a robust mortgage market so impacted employees would be in the best possible position to quickly find new employment."

"As one of the oldest mortgage companies in the U.S., we have been successfully growing this business for nearly 70 years. This is yet another step in our efforts to remain one of the premier mortgage companies in the country," Bognanno said.

The after-tax impact of costs, including severance, on net income is estimated at $6 million to $7.5 million. The move is expected to be earnings neutral in 2003. "Because this move enables us to better focus our growth strategy on lower cost and higher profitability distribution channels, we believe it will have a long-term positive impact on earnings," Bognanno concluded.

About Principal Residential Mortgage

Principal Residential Mortgage, Inc. is a full-service mortgage company currently servicing more than $100 billion in residential mortgage loans for homeowners across the country.

About the Principal Financial Group

The Principal Financial Group(R) (The Principal(R))(1) is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance and mortgage banking through its diverse family of financial services companies. More employers choose the Principal Financial Group for their 401(k) plans than any other bank, mutual fund, or insurance company in the United States(2). A member of the Fortune 500, the Principal Financial Group has $117.4 billion in assets under management(3) and serves some 13 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.

(1) "The Principal Financial Group" and "The Principal" are registered trademarks referring to Principal Financial Group, Inc.

(2) CFO Magazine, April/May 2002, based on total plans served in 2001 by insurance companies, banks and investment firms.

(3) As of September 30, 2002.