Shares of mortgage insurer MGIC Investment Corp. ($4.69 -0.33%) tanked Thursday after the company said it would defer interest payments on $390 million in junior subordinated debt, in a filing with the Securities and Exchange Commission. Mortgage insurers, including MTG ,have been battered amid the long-running U.S. housing crisis.

Thursday's disclosure by MGIC sent shares more than 40 percent lower in intra-day trading. Shares closed at $.86/share, a stunning fall from nearly $14/share one year ago. MGIC said it elected to defer for 10 years the interest on the debentures, but that the debt would continue to accrue interest due at a 9.0 percent compound semi-annually.

Fitch Ratings immediately said it was reviewing MGIC for further ratings downgrades, saying that current debt ratings assigned the insurer had already assumed that a suspension of payments was likely -- but that the move to defer interest payments was "an indicator of the increasing financial pressure facing the company and the mortgage insurance sector as a whole."

The rating agency noted, however, that MGIC has sufficient liquidity to manage its short-term obligations.

After the pummeling the company's stock took on Thursday, Friday morning MGIC released a statement to the press on its decision, saying that the company was not remotely considering bankruptcy and that its decision to defer interest payments was borne solely of a desire "to maintain maximum financial flexibility." The company would not speculate on whether it would defer future interest payments going forward.

Write to Paul Jackson at paul.jackson@housingwire.com.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.