Last Friday, AIG disclosed that it will record a $50 million charge in the second quarter to settle charges with the Office of Thrift Supervision that the company's lending subsidiary charged homeowners "excessive fees" and "didn't properly consider credit ratings." The second quarter charge comes after the company reserved an additional $128 million in the first quarter to pay for the cost of settlement. This story sums up this issue:
OTS said during a regular yearly examination of AIG Federal, loans outsourced to another AIG subsidiary, Plymouth Meeting, Pa-based Wilmington Finance Inc., contained excessive fees and did not adequately consider borrowers' credit status. ... AIG said some of the money will be used to help borrowers with weak credit who face foreclosure after taking out mortgages from AIG Federal Savings Bank between July 2003 and May 2006. ... Under the terms of the settlement, AIG is required to identify the affected borrowers and provide aid to them. The company also must hire an independent consultant to monitor its process and report back to the government.
Under terms of the settlement agreement, AIG also will pay $15 million over the next three years to fund financial literacy programs. Am I the only one that finds this laugable? That's the BEST the OTS can do? AIG reported a first quarter profit of more than $4 billion, for the record. At this rate, every federally-chartered thrift in the nation should have actively engaged in fee cramming during the housing boom, if this is the sort of "penalty" they run the risk of getting hit with. The OTS can preen all it wants about "protecting the interests of homeowners," as OTS Director John Riech did in the agency's press release last week. If AIG indeed did engage in charging excessive fees on its Wilmington-originated mortgages -- the settlement, of course, precluded any admission of wrongdoing -- they just got away with highway robbery and received nary but a slap on the wrist for so doing.