MBIA Inc. (NYSE:MBI) is one of the most popular short sales during the current mortgage crisis, but that may be changing after the company received a $1 billion capital injection from buyout firm Warburg Pincus. The bond insurer is expected to take losses of between $1.97 billion and $3.2 billion from its exposure to home equity lines of credit and second lien loans, while losses from all mortgage-related securities could approach $2.3 billion to $4.2 billion.

Bullish investors were encouraged that an outside party had the chance to comb through the company's books and was willing to make a large common equity investment. However, bearish investors argue that the deal was sweetened with warrants and may not be all that it seems. Moreover, the current numbers may make sense in today's market, but further losses could easily develop as an increasing number of ARM resets hit the market.

The late January reporting period is expected to be an especially rough time period for the company as the sheer size of likely write-downs may surprise the market yet again. This will likely result in spreads widening again a little before any progress is made reining in losses. The company is also likely to pursue additional capital in order to ensure liquidity, which may end up diluting shares at some point.

In the end, the capital injection that took place this week definitely helped MBIA, it is not an end-all solution. The company still faces an uphill battle as an increasing number of ARM resets take place and the credit spreads continue to widen ahead of these steeper losses. Regardless, MBI is definitely a stock worth watching!

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