UPDATE 2-MGIC to scale down $1 bln commitment to MIC unit

* To lower funding to insurance unit under restructuring

* To delay date of first payment

* MGIC may still write new businesses

* Remains open to TARP, federal help

* Shares recover from early fall, up 1 pct (Recasts; adds analysts' comments, updates share movement)

By Anurag Kotoky

BANGALORE, Aug 3 (Reuters) - MGIC Investment Corp (MTG.N) said it may reduce a planned $1 billion investment in a spin-off insurance unit based on the outcome of talks with government-controlled housing companies, sending its shares down as much as 6 percent.

MGIC said the ongoing talks with government controlled mortgage finance companies Fannie Mae FNM.N and Freddie Mac FRE.N could end in a move to have the original company continue to write some new business.

Under a previous restructuring proposal that won a positive reception from investors, MGIC had proposed shifting all new businesses to the spun-off unit.

Mortgage finance companies Fannie Mae FNM.N, Freddie Mac FRE.N partner with insurers like MGIC to help shield them from losses.

A home buyer who cannot offer a 20 percent down payment, for instance, will often turn to mortgage insurers.

Fannie Mae, Freddie Mac and the Federal Housing Finance Agency (FHFA) are in discussions with MGIC about how the company can turn around after posting losses for several quarters, an FHFA spokesperson told Reuters last month.

The largest U.S. mortgage insurer also said the main regulator in Wisconsin approved a delay in the date on which the company plans to make its first contribution of capital to MGIC Indemnity Corp (MIC), the insurance subsidiary.

MGIC plans to wind down its existing operations and capitalize a subsidiary at the beginning of next year in a move that could let it build fresh investments as the housing market stabilizes.

AMPLE CAPITAL

"We continue to believe MGIC will find a way to write new business through this cycle and most likely MIC in some form may be part of that solution," Northland Securities analyst Mike Grondahl said.

The analyst said MGIC has more than ample capital to continue writing new business for at least several quarters and possibly longer and the latest move was very prudent and precautionary in nature.

MGIC said the amount of capital that it will contribute to MIC will be determined as part of the discussions with Fannie and Freddie on their approving MIC as an eligible mortgage insurer.

FBR Capital Markets analyst Steve Stelmach said MGIC is capable of writing new business while minimizing the risk of a highly dilutive capital raise.

"While we would have preferred to have seen a quick resolution with the GSEs (government-sponsored enterprises), this delay does not change our outlook or residual value expectations the company as a whole," Stelmach said in a note.

MGIC said U.S. government's Troubled Assets Relief Program or other governmental funding could be alternatives to MIC.

Mortgage insurers like MGIC and smaller rivals Radian Group Inc (RDN.N) and PMI Group Inc PMI.N have suffered huge losses from backing subprime bonds and mortgages that saw a surge in defaults as U.S. credit and housing markets worsened.

Shares of the Milwaukee-based MGIC pared early losses and were up 1 percent at $6.67 in Monday morning trade on the New York Stock Exchange. They have traded in a range of 70 cents and $12.27 in the past 52 weeks. (Editing by Gopakumar Warrier)