(Reuters) – MGIC Investment Corp, one of the largest U.S. mortgage insurers, is caught between a weak housing market and a very big customer, raising questions about the future of the money-losing company that writes 20 percent of private mortgage guarantees.

For four years, MGIC stumbled through the housing crash, posting a string of losses, breaching capital ratios and being overtaken in almost every aspect of the business by rival Radian Group Inc.

Now its recovery plan, which involves writing new insurance through a newly capitalized unit to take advantage of an upturn in the housing market, is caught up in a $500 million dispute with Freddie Mac, the government-backed mortgage financier and a key counterparty on the mortgages MGIC guarantees.

Freddie Mac says it won't support MGIC's lucrative operations in seven major U.S. states, including California, Texas and Florida, until the dispute is settled.

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