MGIC Investment (NYSE:MTG), The PMI Group (NYSE:PMI), Radian Group (NYSE:RDN), Wells Fargo (NYSE:WFC) Affected Most by New QRM Definition

The new definition of a qualified residential mortgage (QRM) will have the greatest impact on MGIC Investment (NYSE:MTG), The PMI Group (NYSE:PMI), Radian Group (NYSE:RDN) or Wells Fargo (NYSE:WFC), depending on if it's a broad or narrow definition, according to FBR Capital.

FBR noted, "The Dodd-Frank Wall Street Reform Act requires securitizers to retain an economic interest in the credit risk of any asset they securitize. While the act establishes a 5% risk retention requirement, it also gives the regulators considerable flexibility implementing these rules, including the ability to exempt certain loans. The area of greatest flexibility is in the securitization of residential mortgages, where regulators are instructed to come up with a definition of a “qualified residential mortgage” (QRM) and exempt the loans from any risk retention. For a residential mortgage to qualify as a QRM, it must have features that lower the risk of default; however, with the final definition left to the regulators, there is considerable debate on how QRM will be defined. Ultimately, we believe QRM will be broadly defined and serve as a net positive for the mortgage insurance industry; however, the rulemaking process could produce some significant headline risk for the industry (should regulators propose a narrow definition). Beyond mortgage insurance, we believe these rules will help determine which mortgages are originated in the United States and how all assets are securitized.

FBR added this points: 1) Expect draft rules soon; 2) Qualified residential mortgage is key definition; 3) Broad versus narrow; 4) Impact to the MI industry; and 5) Who this impacts. A broad definition of QRM would most benefit MGIC Investment Corporation (MTG)(Outperform), The PMI Group (PMI)(Market Perform), then Radian Group (RDN)(Market Perform). A narrow definition would have the most positive impact on large mortgage originators, with Wells Fargo & Company (WFC)(Market Perform) leading the pack.

MGIC Investment was trading at $11.42, up $0.12, or 1.06 percent, as of 12:48 PM EST. PMI Group was trading at $3.90, up $0.05, or 1.30 percent. Radian Group was at $9.38, down $0.02, or 0.16 percent. Wells Fargo was trading at $31.98, down $0.03, or 0.09 percent.