MGIC joins fundraising circuit

Mortgage insurer MGIC Investment (MTG) is the latest financial guarantor to find itself trying to raise new capital. The Milwaukee-based company took a big hit in the fourth quarter as its business of reimbursing lenders when borrowers miss mortgage payments turned into a giant money pit. MGIC lost $1.47 billion, or $18.17 a share, for the quarter ended Dec. 31, reversing the year-ago profit of $122 million, or $1.47 a share. The latest quarter was hit by a pretax premium deficiency reserve of $1.2 billion tied to MGIC’s guarantees of securitized home equity loan deals - a sign that the company now expects to pay out more in claims than it has received in premiums or reserved against future losses. MGIC said that it doesn’t expect to make money in 2008 and hired an adviser to help it raise capital.

MGIC will have plenty of company in that regard: The bond insurers MBIA (MBI) and Ambac (ABK) have been on the capital-raising circuit for the last two months, with MBIA having raised more than $2 billion from sources including private equity firm Warburg Pincus. For its part, MGIC stresses it  “has adequate capital to meet its claim obligations” and adds that “there have been significant improvements to the company’s business fundamentals,” including tighter credit standards and higher premiums in some segments. Investors better hope those trends hold up, because in the meantime MGIC has a big hole to dig itself out of.