Sept. 10 (Bloomberg) -- Third Avenue Management LLC, the money manager founded by Martin Whitman, more than quadrupled its stake in mortgage insurer Radian Group Inc., buying into a housing slump that sent the stock down 67 percent in two months.

Third Avenue held 8.63 million shares of Philadelphia-based Radian, or 11 percent of outstanding shares, as of Aug. 31, according to a regulatory filing today. The New York-based company had 1.97 million shares at the end of June.

Radian, the third-largest U.S. mortgage insurer, plunged as borrower defaults hit a record. No. 1 MGIC Investment Corp. scrapped plans last week to buy the company amid the worst housing decline in 16 years. Mortgage insurers protect lenders against homeowner defaults.

Third Avenue joins Canadian mutual fund manager AIC Ltd. and hedge fund manager D.E. Shaw & Co. in boosting its Radian investment. AIC Ltd. last week reported more than doubling its stake to 10.8 million shares, or 13 percent, as of Aug. 16. Last month, New York-based D.E. Shaw said it increased its Radian ownership to 4.26 million shares as of Aug. 7, from 1.12 million at the end of March.

Mortgage insurers are selling more coverage as lenders seek to reduce their risk and increase their chances of selling loans to investors. The industry issued 42 percent more policies in the first seven months of the year than during the same period in 2006, said Jeff Lubar, spokesman for the Mortgage Insurance Companies of America.

Defaults Decline

Lenders in July sent 179,599 notices of default, auctions or repossessions, almost double a year earlier, according to Irvine, California-based RealtyTrac Inc. A measure of the supply of homes for sale in July rose to the highest since October 1991, according to the National Association of Realtors.

Third Avenue was formed in 1986 by Whitman, who was formerly an investment banker and turnaround specialist for bankrupt companies. The 82-year-old investor has managed the firm's $11 billion flagship Third Avenue Value Fund since its inception in 1990. The fund has climbed at an average annual pace of 19 percent over the past five years, compared with the 12.2 percent gain in the Standard & Poor's 500 Index.

The company disclosed its increased stake after the close of regular trading in U.S. markets. Spokeswoman Bridget Smith didn't return a call after regular business hours seeking comment.

Radian spokeswoman Mona Zeehandelaar wasn't available to comment. A call to her executive assistant wasn't returned.

Radian today fell 21 cents, or 1.2 percent, to $17.05 in New York Stock Exchange composite trading.

MGIC, based in Milwaukee, insured $57.5 billion of new mortgages in 2006, giving it a 22 percent market share in the U.S., according to Inside Mortgage Finance. Walnut Creek, California- based PMI Group Inc. insured $52.2 billion, or 20 percent, followed by Radian's $40.1 billion, or 15 percent.

To contact the reporter on this story: Josh P. Hamilton in New York at jphamilton@bloomberg.net.

Last Updated: September 10, 2007 18:44 EDT