NEW YORK (AP) -- American International Group (NYSE: AIG ) said Wednesday that it's entering the business of investing in home mortgages, just a few days after government control was completely removed from the bailed-out insurer.
AIG's announcement that it launched a new division called Connective Mortgage Advisory Co. comes as the housing market recovers and the government steps up efforts to shrink its role in the mortgage finance system. The federal regulator that oversees Fannie Mae and Freddie Mac put forward a plan Monday to combine the two mortgage giants' divisions that issue billions of dollars in securities backed by home loans.
The plan is part of efforts to overhaul Fannie and Freddie and create a mortgage finance system that would rely far more on private money. That would open an arena for financial companies like AIG.
New York-based AIG said in a news release that its new division will identify home loans for AIG to buy as long-term investments. AIG said it also will manage the servicing of the mortgages.
Investing directly in home mortgages "offers attractive investment returns and enables a proactive approach to managing mortgage risk," William Dooley, AIG executive vice president for investments and financial services, said in a statement.
The housing market has started to recover more than five years after its bubble burst. Home sales are up from a year ago, helped by a limited supply of homes for sale and record-low mortgage rates. Builders are more confident and have started to construct more homes. And home prices are showing consistent gains.
The Treasury Department sold off the last of its stock in AIG in December and sold its remaining warrants in the company this month, severing its final financial link to the company.
AIG received $182 billion in government aid in 2008, the biggest bailout of the financial crisis. The company repaid the bailout funds over the years and also has undergone a massive restructuring that cut its size in half as it turned it focus to its core business of writing insurance.
AIG shares rose 16 cents to $38.41 in afternoon trading.