Also Tuesday, jumbo mortgage lender and real estate investment trust Thornburg Mortgage Inc. said it will raise $1.35 billion through a private-placement deal to help keep the company in business and avoid bankruptcy. Thornburg said it has to raise the money this week.

MGIC said it will raise about $420 million in a public offering of 37.3 million shares. The offering last week was estimated to be worth $350 million in shares.

The company also will sell $325 million of convertible debt into the private market, with an option for the initial buyer to acquire up to an extra $65 million of the debt securities.

Shares of Milwaukee-based MGIC fell $1.05, or 7.9 percent, to close at $12.25. The shares have fallen about 82 percent from their 52-week high of $67.05.

Thornburg's move to raise money could keep it in business. Facing potential bankruptcy, Thornburg raised the money to help alleviate margin calls and demands for more collateral from its creditors. Thornburg's creditors have agreed to suspend any future margin calls for about a year if the company raises $948 million by Thursday.

Had Thornburg faced more demands from its creditors, it's unlikely it would have been able to stay in business.

The private placement of senior subordinated notes will carry an initial interest rate of 18 percent, which can be reduced to 12 percent depending on certain requirements, which were not disclosed.

Thornburg, based in Santa Fe, N.M., will also offer investors in the new debt an option to purchase future shares of common stock for 1 cent per share. The company said it expects those shares to equal about 48 percent of all outstanding shares at the time.

This latest deal replaces a previously sought, unsuccessful plan by Thornburg to raise about $1 billion in convertible notes with an interest rate of 12 percent.

Thornburg is seeking a waiver from the New York Stock Exchange to complete the deal without shareholder approval so it can try to meet the creditors' deadline.

Shares of Thornburg rose 46 cents, or 36 percent, to close at $1.73.

The capital-raising efforts, coupled with recent Federal Reserve actions to help improve liquidity in the credit markets, could provide some stability to Thornburg, said Bose George, an analyst at Keefe, Bruyette & Woods Inc. But he said those benefits could be offset by the company's corporate structure as a real estate investment trust and continued weakness in the mortgage securities market.

REITs are required to pay out 90 percent of profits to shareholders.

"Going forward, it gives Thornburg a bit of working capital, but the model of business is still under pressure," he said.

MGIC has said its move to raise capital will help it expand the business. The company has not given a date when its share offering will go public. On Monday, it said Chief Executive Curt S. Culver planned to buy 25,000 shares.

The sale of MGIC's stock and bonds means MGIC could be expanding its share count by more than 60 million shares, which implies it's selling a roughly 40 percent stake in itself, said Briggs-Ficks Securities LLC analyst John Collopy.

Collopy said ratings agencies were putting pressure on the company to build a bigger capital base to justify its credit and financial strength ratings.

As more Americans default on mortgages, the holders of those mortgages turn to insurers such as MGIC, making claims to recoup their losses.

MGIC's payouts last year totaled $870 million, a 42 percent increase over 2006. The company expects to pay up to $2 billion in claims this year.

MGIC reported a loss of $1.67 billion in 2007 and doesn't expect to turn a profit this year.

The company maintains it has enough cash on hand to pay claims, and it has tightened credit requirements and demanded larger payments for insured loans.

The housing market has continued to deteriorate in the meantime, and on Tuesday, the Standard & Poor's/Case-Shiller index showed U.S. home prices suffered their steepest decline in more than two decades.

Prices fell 11.4 percent in January from a year earlier, the steepest drop since S&P started collecting data in 1987.

The decline reported Tuesday means prices have been growing more slowly or dropping for 19 consecutive months. The index tracks the prices of single-family homes in 10 major metropolitan areas in the U.S.

AP Business Writer Stephen Bernard in New York contributed to this report.

MGIC: http://www.mgic.com

Thornburg: https://www.thornburgmortgage.com