Bloomberg News

AIG Mortgage Unit to Waive Some Rights Under Refinancing Plan

November 23, 2011

Nov. 22 (Bloomberg) -- American International Group Inc.’s mortgage-guarantee unit will make concessions to help borrowers refinance home loans under a U.S. program after the bailed-out insurer had said it was concerned it would have to pay for lenders’ faulty underwriting.

“United Guaranty will responsibly expand our already- robust participation in the program by waiving representations associated with the original loan file for a majority of our portfolio,” Brian Gould, the unit’s senior vice president of loss management, said in a statement yesterday.

AIG had previously told lenders it was unwilling to offer the same protections on defective loans that competitors granted to aid the Home Affordable Refinance Program, according to four people with knowledge of the talks. Fannie Mae and Freddie Mac, the U.S.-controlled mortgage firms, then offered additional information last week for refinancing under HARP.

“They were the odd man out,” Cliff Rossi, executive-in- residence at the University of Maryland’s Robert H. Smith School of Business and a former risk officer at Citigroup Inc., said in a phone interview. “I think they looked around and said, ‘Uh oh, we’re out here hanging out on our own.’”

Before Fannie Mae and Freddie Mac disclosed the new information on Nov. 15, New York-based AIG said it was concerned lenders were using the program to relieve them of the risk tied to poor underwriting decisions. The company subsequently determined it could make concessions on a greater number of loans than previously assumed, Mark Herr, a spokesman for AIG, said yesterday in a phone interview.

17,000 Families

United Guaranty provides insurance on about $88 billion of Fannie Mae and Freddie Mac loans, the fourth-most, according to securities filings. The mortgage insurer has helped more than 17,000 families modify loans under HARP, according to yesterday’s statement.

The concessions offered by the mortgage-insurance industry include waiving rights to void coverage for most types of underwriting mistakes on borrowers’ original loans, said two people familiar with the talks.

Under their charters, Fannie Mae and Freddie Mac typically must have borrowers buy mortgage insurance if their loans exceed 80 percent of a home’s value. The coverage guards against losses when borrowers default and foreclosure fails to recoup costs.

Taxpayers rescued AIG in 2008 after bets tied to the housing market soured. Its bailout was revised at least four times and swelled to $182.3 billion. The insurer paid back the remaining $21 billion on a Federal Reserve credit line in January and the U.S. Treasury Department converted its preferred stake into 92 percent of the company’s common shares. That holding was reduced to 77 percent in a May share sale.

--Editors: Peter Eichenbaum, Dan Kraut

To contact the reporters on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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