Poor management and controls over the operations of Wilmington Finance Inc. have led to a costly settlement with the Office of Thrift Supervision.
The agency announced Friday the settlement with AIG Federal Savings Bank dated June 7 over its lax oversight and control of loans outsourced to affiliate Wilmington from 2003 to 2006.
"A number of the [Wilmington Finance Inc.] originations resulted in a negative financial impact to certain borrowers due to inadequate consideration of the borrower's creditworthiness or through large broker and/or lender fees," supplemental documentation from the agency said. "The OTS terminated the objectionable practices and pursued relief for borrowers facing negative financial impact as a result of the practices."
Wilmington, Del.-based AIG is required by the agreement to identify borrowers who have been negatively impacted by Wilmington and are risk of foreclosure, the OTS reported. A process for handling customer complaints will be established, and an independent consultant will be hired to monitor the activity and report back to the agency quarterly.
American General Finance is also part of the settlement, which targets subprime borrowers, AIG announced.
A reserve of $128 million established in connection with the settlement will be used "to cover costs associated with providing affordable loans to borrowers whose creditworthiness was not adequately evaluated when their loan was originated and to reimburse borrowers who paid large broker fees or lender fees at the time of the origination," the agency noted.
AIG expects the reserve, including a $15 million donation to financial and credit counseling organizations over a three-year period, to be $50 million for the second quarter.
"OTS is taking the action necessary to address problems in the mortgage markets and protect the interests of homeowners in jeopardy of losing their homes," OTS Director John M. Reich said in the statement. "The supervisory agreement with AIG FSB provides a model based on the responsible actions by the institution to address important consumer protection issues arising from their past lending practices that were harmful to certain borrowers."