Mortgage insurer MGIC sells Sherman stake

NEW YORK (Reuters) - MGIC Investment Corp (MTG.N), the largest U.S. mortgage insurer, said on Thursday it sold its stake in Sherman Financial Group LLC for a total of $209.5 million.

MGIC, which owned 24.25 percent of Sherman, is selling the stake back to Sherman, a debt recovery firm.

MGIC, hit hard by the U.S. mortgage crisis, said in a filing with the U.S. Securities and Exchange Commission the sale includes $124.5 million in cash and an $85 million promissory note. It could also qualify for an additional payment next year, subject to certain conditions.

MGIC said it would disclose how much of a gain it makes from the sale when it reports third-quarter results.

The sale comes on the heels of smaller rival PMI Group Inc (PMI.N) earlier on Thursday saying it would sell its Australia, New Zealand and Asian businesses to Australia's QBE Insurance Ltd (QBE.AX).

Mortgage insurance policies cover U.S. lenders when borrowers who put down less than 20 percent default on home loans. Claims have soared as the mortgage crisis has worsened, at the same time that demand for the policies has fallen while banks have tightened their lending practices.

In that environment, mortgage insurers have been seeking ways to shore up capital.

No. 2 U.S. mortgage insurer Radian Group Inc (RDN.N) and MGIC had both invested in Sherman, and another New York company, C-Bass, which invested in subprime loans. The two companies wrote off much of their $1.03 billion investment in the latter, and called off a planned $5 billion tie-up.

(Reporting by Lilla Zuill; Editing by Braden Reddall)