AIG to start loan investment unit

NEW YORK: American International Group Inc. (AIG), the insurer that was rescued by the U.S. government in 2008 after soured bets on mortgage securities, is building a unit to buy individual home loans amid a rebound in the housing market. AIG plans to buy loans backed by its United Guaranty Corp. unit, the largest seller of traditional private mortgage insurance last year, according to Donna DeMaio, 54, the unit’s chief executive officer. The debt will be held as long-term investments by AIG insurance companies. “You’re cutting the middle man out of the securitization process,” DeMaio said, referring to bonds that package home loans. The yield on an individual mortgage “is better than if you just bought the paper backed by the whole loan.” AIG CEO Robert Benmosche, 68, said in October the New York- based firm has to find ways to boost returns as the Federal Reserve keeps interest rates near record lows, reducing bond yields. He’s also positioning the firm to benefit as the U.S. cuts its role as the largest financier of new loans for American home buyers. Edward J. DeMarco, the Federal Housing Finance Agency’s acting director, said this week that he wants to expand the private market for mortgages by shrinking government-owned Fannie Mae and Freddie Mac.

AIG’s program is “dovetailing very nicely with what’s going on in the market,” DeMaio said yesterday in a telephone interview. The new unit, Connective Mortgage Advisory Co., will evaluate loans made by other lenders for purchase by AIG, said DeMaio, who joined the insurer last year and previously ran MetLife Inc.’s bank. Connective, part of Greensboro, North Carolina-based United Guaranty will use data compiled by the mortgage insurer to help AIG determine which loans to buy. It won’t originate loans or bundle them into securities.