A 'qualified residential mortgage' (QRM) rule that does not include a mandate for mortgage insurance will not necessarily harm the MI industry, according to a new report from FBR Capital Markets.

FBR believes that MIs may even consider becoming real estate investment trusts. The research firm said that under this scenario, originators of high loan-to-value ratio mortgages could turn to the private label market and save the 25 basis point guarantee fee and approximate 75 basis points of mortgage insurance premiums.

"Under this scenario, the MIs would need to revisit their current business models, which would possibly evolve into asset acquirers rather than mere credit enhancers," wrote analysts Steve Stelmach and Edward Mills.

FBR warned that not having a federal mandate for MI will hurt the stock valuations of the publicly traded mortgage insurers, but cautions against a "knee-jerk sell-off" of the stocks.
Banking regulators have yet to finalize their QRM rule and it's unclear at this point what role MI will play.

FBR believes that MI firms have a legacy book of business that, once clear of losses, should continue to generate significant premiums and eventual earnings.

Last decade, an affiliate of FBR took many nonprime mortgage firms public, converting them into REITs. When the housing bubble burst, almost all of these firms failed.

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