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Troubled borrowers to get refunds, low-cost loans

AIG FSB's settlement with regulators expected to cost $178 million

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American International Group Inc. says it's set aside $178 million to settle charges by bank regulators that its subprime mortgage lending subsidiaries failed to adequately evaluate the credit of some borrowers and charged high broker and lender fees. The agreement covers mortgages originated between July 2003 and May 2006 in the name of AIG's subsidiary, AIG Federal Savings Bank, by Wilmington Finance Inc. According to the Office of Thrift Supervision, Wilmington Finance provided "extensive mortgage loan origination services" for AIG FSB, which "failed to manage and control the (outsourced) lending activities ... with appropriate consideration to consumer protection issues." OTS examiners concluded that a number of Wilmington Financial originations had negative financial impacts for borrowers because of inadequate consideration of the borrower's credit worthiness, or because of large broker or lender fees. Under a program that's to be implemented by the end of the mont...