American International Group is entering the residential whole loan purchase business through a new business unit, Connective Mortgage Advisory Co. In a press release published today, the insurer said it will be using the expertise of its mortgage insurance subsidiary, United Guaranty Corp., to help identify and buy loans for its investment portfolio.

There are no plans for Connective to do any direct lending or securitization;  Connective will hold these loans as long-term investments and AIG will manage the servicing component, according to the press release.

Investments in mortgage-backed securities contributed to financial losses at AIG during the financial crisis. The insurer was bailed by the U.S. government in September 2008.

AIG executive vice president William Dooley said direct investment in residential mortgage loans "offers attractive investment returns and enables a proactive approach to managing mortgage risk.” 

Connective has already made its first correspondent purchase for AIG.

UGC has been using a risk-based pricing model for its mortgage insurance policies. Donna DeMaio, chief executive of UGC, noted that this model has allowed the company to become a market share leader by dollar amount of primary new insurance written (National Mortgage News data has UGC at the No. 2 spot in the fourth quarter of 2012 NIW, at $11.6 billion, just behind Radian at $11.7 billion).

The mortgage insurer’s involvement in Connective might be an issue with some of the lenders it does business with, but DeMaio sought to alleviate their concerns.

“The launch of Connective is the result of significant work by team members throughout UGC and AIG," she said. "We're excited to be able to play a role in AIG’s bringing private capital back into the residential mortgage secondary market.

“Neither Connective nor AIG will compete with banks or other mortgage originators. In fact, we view this as an important first step in providing customers with more investor opportunities for the loans they originate,” she said.

No other private mortgage insurer is active in any loan origination channel. Late last year, Genworth sold a reverse mortgage origination business to Ocwen. And Genworth’s previous owner, GE, had a subsidiary which originated and serviced loans.

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