Federal regulators dealt the private mortgage insurance industry a setback last week when they opted to ignore the presence of private MI coverage in defining “qualified residential mortgages” under a new proposed rule governing securitization. The new rule will require issuers of mortgage securities that are not backed by QRMs to retain a 5 percent share of the risk. As a practical matter, it won’t apply to Fannie Mae and Freddie Mac business as long as the government-sponsored enterprises are in conservatorship, although this exemption would not necessarily be extended to any post-GSE entity that Congress may create. If the agencies stick...