AIG undermines US mortgage refinancing

AIG, the insurer bailed out by the US authorities, is frustrating attempts by US homeowners to refinance their government-backed mortgages, according to politicians and Obama administration officials.

Unlike its rivals, AIG’s mortgage insurer is refusing to automatically waive its right to pursue lenders for misrepresenting the quality of loans that may default. That in turn has put the brakes on some refinancings of AIG insured loans, according to industry officials.

A review of the five biggest mortgage insurers by the Financial Times shows that borrowers with AIG insured loans have been the least likely to benefit from a US government refinancing programme.

The Home Affordable Refinance Programme, or Harp, is designed to boost refinancings of government-backed mortgages for homeowners with little to no equity. The US government wants to expand refinancings at a time of record low borrowing rates.

The US government owns 61 per cent of AIG.

The stance taken by United Guaranty, an AIG subsidiary that sells mortgage insurance to lenders, undermines efforts by the Obama administration and US-controlled mortgage financiers Fannie Mae and Freddie Mac, officials said.

The average rate on a 30-year fixed loan is 3.62 per cent. Most creditworthy US homeowners who are current on payments are paying more than 5 per cent, according to CoreLogic, a housing data provider.

“With so many families struggling to make ends meet, it is unacceptable that United Guaranty continues to limit the ability of its customers to refinance at today’s record low rates,” said Senator Barbara Boxer.

Kim Garland, chief executive of United Guaranty, said the company “in no way interferes with borrowers’ ability to take advantage of Harp”.

He added that the company gives up its right to pursue lenders for poor underwriting on the “vast majority of loans”.

About 27,000 mortgages insured by United Guaranty have been refinanced under Harp since it launched in mid-2009, the lowest number among the top five US mortgage insurers.

It has refinanced loans worth $5.3bn under Harp, equal to 23 per cent of its exposure to government-backed loans as of mid-2009.

MGIC, Radian, Genworth and PMI Financial – United Guaranty’s rivals – have all refinanced mortgages of value equal to at least 25 per cent of their exposure. For Radian and Genworth the figure is closer to 33 per cent.

AIG’s rivals all agreed to automatically waive many of their rights to challenge payouts should loans refinanced under Harp default.

Mr Garland said: “United Guaranty is unwilling to take on sole responsibility for loans that may have fraud or may have been poorly underwritten.”

United Guaranty noted that Harp refinancing activity for loans it insures jumped more than 60 per cent quarter over quarter in the period ending March 31.

The AIG subsidiary is exploring easing its policy towards lenders who may have misrepresented the quality of their loans, it said. It would instead charge a fee in exchange for releasing lenders from liability.