American International Group Inc. — one of the too-big-to-fail companies that stood at the edge of the cliff during the 2008 financial crisis — has been weaned off government support and emerged with a new program to invest in mortgages for its own portfolio. Loans will be originated through a new correspondent unit.
In September 2008, the Federal Reserve Bank of New York agreed to step in and lend AIG up to $85 billion to help the distressed financial services company avoid collapse. Including all government support, AIG received $182.3 billion.
AIG had issued credit default swaps on collateralized debt obligations and was nearly put out of business when CDO values plummeted during the financial crisis.
But fortunes have improved for the New York-based company.
Its 2012 earnings were $3.4 billion, and the company reported “the full repayment of America’s financial support of AIG” during the fourth quarter.
On Wednesday, AIG announced the launch of Connective Mortgage Advisory Co.
The new correspondent unit will identify and acquire residential whole-loan mortgages as long-term investments, according to the news release. Servicing on the acquired loans will be managed by AIG.
“Connective will establish correspondent relationships with lenders, underwrite loans and provide support throughout the loan purchase process,” AIG said. “All purchases will be subject to rigorous underwriting and risk management standards.”
AIG said it doesn’t plan to securitize any of the loans or open a retail origination channel.
Using a multivariate risk-assessment model developed by subsidiary United Guaranty to determine the quality of individual loans in the pricing of mortgage insurance premiums, AIG adds its own investment expertise to create “unique new investment opportunities for AIG.”
Connective Mortgage has already facilitated AIG’s first correspondent mortgage purchase, according to the announcement.
AIG Executive Vice President William Dooley noted in the statement that the new channel provides attractive investment returns while enabling a proactive approach to managing mortgage risk.