AIG settles mortgage allegations

WASHINGTON - American International Group Inc. has settled allegations that it charged excessive mortgage fees and didn't properly consider homeowners' credit ratings.

AIG, a New York insurance giant that also runs a home-mortgage business, said yesterday that it planned to take a $50 million charge in the second quarter to cover the cost of the settlement with the federal Office of Thrift Supervision. The company had taken a $128 million charge in the first quarter while the settlement was being negotiated.

AIG said yesterday that some of the money would 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. AIG Federal Savings is a Delaware-based unit of AIG. Some borrowers may qualify for a refund of mortgage fees instead of a new mortgage, the company said.

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.

AIG also agreed to pay $15 million over three years to nonprofit groups that promote financial literacy and credit counseling.

The settlement will have a small financial effect on AIG, which reported a first-quarter profit of $4.13 billion. But it could signal the direction federal regulators aim to take to clean up abusive mortgage-lending practices that critics say were common during this decade's housing boom.