American International Group Inc. said it has agreed to reserve $178 million, part of which will pay broker and lender fees, in a settlement of its alleged mishandling of subprime homeowner loans that a federal regulator said were not properly managed.
New York-based insurer AIG said on Friday that an agreement was reached with the Office of Thrift Supervision (OTS), a regulatory banking arm of the Treasury Department, over practices of the company's three lending subsidiaries in managing subprime borrowers.
AIG has reserved $178 million to cover the cost of providing affordable loans to borrowers whose creditworthiness was questionable at the time of the original loans and to reimburse borrowers who paid large broker or lender fees when the loans originated. The company will also pay an additional $15 million for financial literacy programs and credit counseling.
Kevin Petrasic, a spokesman for OTS, explained that the $178 million will cover the refinancing of loans for individuals who were put into bad loans, reimbursement to those who paid large fees, or homeowners who were subject to both situations. Those costs include the loss in interest payments the institutions expected, he said.
An OTS consultant will be hired to ensure the financial institutions are remedying the situation, said Mr. Petrasic. He said while the institutions are subject to finding borrowers in danger of foreclosure or who paid the high fees, OTS is encouraging people who feel they may have been a victim to come forward.
When asked how many people are affected, he said he could not give a figure but that the number was substantial.
AIG reserved $128 million at the end of the first quarter of this year. The company will have to reserve an additional $50 million to cover the cost of the agreement that will be recorded in the second quarter.
The OTS accused the three subsidiaries (AIG Federal Savings Bank, American General Finance Inc. and Wilmington Finance Inc.) of failing "to manage and control in a safe and sound manner" loans made to consumers. The loans were made between July 2003 and May 2006.
According to the agreement, the three entities neither admit nor deny engaging in any unsound practices.
Under the agreement, the three loan institutions agreed to take steps to assist certain borrowers to remain in their homes despite the difficulties they may be experiencing in meeting their loan payments, AIG said.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.