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Bank of America's

(BAC) - Get Bank of America Corp Report

partial bailout of troubled homeowners

caused a major surge in stocks of mortgage insurers Wednesday.

PMI Group

( PMI) was the biggest gainer, jumping 22% on volumes of 19 million shares, some five times its trailing daily three month average.


(MBI) - Get MBIA Inc. Report

was up 16.7%,

Ambac Financial

( ABK) was up 9.81%,

Genworth Financial

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(GNW) - Get Genworth Financial, Inc. Class A Report

jumped 4.8%,

Radian Group

(RDN) - Get Radian Group Inc. Report

soared 18.84% and

MGIC Investment

(MTG) - Get MGIC Investment Corporation Report

rose 9.91%.

Bank of America said it will reduce outstanding principal obligations for certain distressed homeowners. Some of the borrowers affected by Bank of America's decision have seen such a severe decline in the value of their homes that they owe the bank more than their homes are currently worth.

That is good news for the mortgage insurers, because it reduces the likelihood they will have to make payouts on defaulted mortgages.

"It basically lets the mortgage insurers off the hook," says Tim Ghriskey, head of Solaris Asset Management, which owns shares of Genworth and Radian. Ghriskey says he sees a chance for a further rally in these companies as other banks could follow Bank of America's lead.

Bank of America shares were also higher Wednesday, up more than 2% in early afternoon trading.


Written by Dan Freed in New York