) -- Big banks and mortgage insurers are likely to see the greatest benefits from changes to the bailout of

Fannie Mae



Freddie Mac


unveiled by the U.S. Treasury Department and the Federal Housing Finance Authority last week, according to a report published Monday by FBR Capital Markets.

The Treasury bills the changes as "further steps to expedite

the wind down" of the government-sponsored enterprises (GSEs), which have received some $200 billion each in taxpayer support since being put into conservatorship by the Treasury in 2008. As part of the changes, the GSEs investment portfolios will be wound down at 15% annually as opposed to the previous 10% rate.

However, FBR analyst Ed Mills points out that the accelerated wind down "does not limit the amount of loans that Fannie or Freddie can guarantee; this is just the loans in their retained portfolio." As a result, "nothing in this agreement reduces the dominance of Fannie and Freddie in the securitization of conforming loans."

The GSEs currently guarantee the overwhelming share of U.S. home loans, and will continue to do so. So while Treasury claims it is winding down the institutions themselves, what it is really doing is winding down the percentage of loans they carry on their balance sheets. The rest are securitized and sold to investors, with the GSEs still standing behind them if the borrower fails to pay.

In order for the GSEs to stand behind a loan, however, it must meet certain predetermined criteria. An increasing number of rules for mortgages are only making those criteria more strict. And who better to meet those criteria than a home lending factory like

Wells Fargo

(WFC) - Get Report

JPMorgan Chase

(JPM) - Get Report


US Bancorp

(USB) - Get Report


PNC Financial

(PNC) - Get Report

that can take advantage of economies of scale? Mills mentions all these institutions as likely beneficiaries in his report.

Mills also sees a benefit to private mortgage insurers from last week's announcement. He notes that both the Treasury's announcement as well as a statement from the FHFA, which oversees the GSEs refer to a "strategic plan" for the GSEs released by the FHFA in February. That plan states that "while some mortgage insurers are facing financial challenges as a result of housing market conditions, others may have the capital capacity to insure a portion of the mortgage credit risk currently retained by the Enterprises. This could be accomplished through deeper mortgage insurance coverage on individual loans or through pool-level insurance policies."

As the GSEs take fewer loans on their balance sheets, then, it will give mortgage insurers an increasing opportunity to pick up some of the slack, Mills contends. Shares of mortgage insurers have been strong performers since the Treasury's announcement Friday morning. From Friday's open through late afternoon trading on Monday, shares of

MGIC Corp.

(MTG) - Get Report


Radian Group

(RDN) - Get Report


Genworth Financial

(GNW) - Get Report

were up 4.2%, 5.25% and 3.77%, respectively.


Written by Dan Freed in New York


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