With much uncertainty remaining over the qualified residential mortgage standard, mortgage insurers are likely to face more headwinds going into 2012, according to a new report from Keefe, Bruyette & Woods analysts. Other areas of concern are the talks occurring between state attorneys general and mortgage servicers. Until a clear settlement is reached and clarity is achieved in the mortgage sector, KBW sees mortgage insurers sweating it out. "These are challenging times for the mortgage insurers as they enter 3Q11 earnings," KBW said. "Share prices have dropped to extremely depressed levels as macroeconomic concerns weigh on the industry (and the equity markets overall). Credit has remained within expected parameters, although seasonal negative trends and reduced loan modification and rescission and denial benefits have added to the directional uncertainty." KBW said it is reducing its quarterly estimates on mortgage insurers due to an increase in delinquencies. "While we believe value still exists in the primarily pure-play names like MGIC Investment (MTG) and Radian Group (RDN), until there is greater clarity on the real estate market or the catalyst timeline speeds up, we believe the sector will face trading headwinds," KBW said. "Additionally, we are changing our rating on PMI (PMI) to 'covered — not rated from market perform,' given the tremendous uncertainty surrounding capital needs and regulatory intervention." The PMI Group  has had a rough few months. The mortgage insurer was pulled under the umbrella of its primary regulator, the Arizona Department of Insurance, last month and forced to stop writing new business. Write to Kerri Panchuk.