MGIC sells $745 million of stock, convertibles

By Dan Wilchins

NEW YORK (Reuters) - Mortgage insurer MGIC Investment Corp (MTG.N: Quote, Profile, Research) on Tuesday said it had sold $420 million of shares and $325 million of convertible bonds to help support new business it hopes to win as the housing crisis increases demand for home loan insurance.

MGIC's shares dropped 10.7 percent to $11.88 after the common stock was sold at $11.25 a share.

Times are difficult in the mortgage industry, as investors concerned about potential losses are increasingly reluctant to finance mortgage companies in any form. Thornburg said on Tuesday it was selling up to $1.35 billion of bonds in a private placement, in a bid to avert bankruptcy.

The housing crisis is hitting MGIC and should continue to trigger losses in coming quarters, which explains why its shares are trading at around a third of their book value.

The largest U.S. mortgage insurer posted a $1.47 billion fourth-quarter loss in February, and said claims increased seven fold. The company said it expects to post a loss for 2008.

But MGIC, which guarantees repayment of principal and interest on home loans, says it has enough capital to meet its obligations.

And the higher default rates that are triggering higher payouts are also boosting demand for mortgage insurance by making alternatives harder to find.

MGIC typically insures home loans when the borrower can't afford to make a 20 percent down payment. In 2006 and early 2007, many prospective home buyers were borrowing their down payments with separate loans, which cut into mortgage insurers' business.