Real Estate News

AIG Offers U.S. $15.7 Billion to Buy Back Its $20.5 Billion Subprime Mortgage Portfolio


Robert Benmosche

Talk about chutzpah.  American International Group has it in spades.

The New York City-based global insurance conglomerate is offering the U.S. Treasury $15.7 billion cash to buy back the $20.5 billion in subprime mortgages the government has held since 2009.

At that time and over later months, American taxpayers, through the government, loaned AIG a total $182 billion to stay alive.

AIG, through reckless churning of risky derivatives and other financial vehicles, was at the point of insolvency when the government stepped in to save the company.

The Treasury plans to sell off its entire $142 billion portfolio of mortgage-backed securities beginning in late April.

At this time, AIG is 92 percent owned by the federal government.

In a filing with the Securities and Exchange Commission, AIG said the Federal Reserve Bank of New York will make a profit of about $1.5 billion on its residual equity interest in Maiden Lane II, the entity that holds the securities, if it accepts AIG's offer.

AIG estimates it will owe the government only about $26 billion, if the Fed goes for AIG's offer.

According to Reuters, AIG's main role was in issuing insurance--called credit default swaps--that backed up the subprime mortgage industry, which collapsed as housing prices fell.  AIG got into trouble because it did not have the reserves to pay off on the swaps.

AIG CEO Robert Benmosche told The Wall Street Journal he has learned four major banks are also considering bidding for the government's portfolio. 


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