NEW YORK (Reuters) - American International Group, one of the biggest U.S. mortgage lenders, warned on Thursday that mortgage defaults are spreading.
While saying that most of its mortgage insurance and residential loans were safe, AIG made a presentation to analysts and investors that showed delinquencies are becoming more common among borrowers in the category just above subprime.
Although acknowledging the "significant declines" in subprime securities, Chief Executive Martin Sullivan said AIG's tight underwriting standards had minimized losses and he was "poised to take advantage of opportunities" in the mortgage market.
AIG was at $65.41, down $1.07, or 1.6 percent, on the New York Stock Exchange in late morning trading. The Standard & Poor's insurance index was down 2.3 percent.
AIG said delinquency rates for first mortgages had risen to 3.98 percent in June from 3.56 percent in April and a low of 3.08 percent in July 2005. First mortgages represent 90 percent of AIG's domestic mortgage business.
AIG divided its mortgage portfolio into three categories: subprime, for borrowers with credit scores below 620; "nonprime," for borrowers with credit scores between 620 and 659, and prime, for borrowers with credit ratings above 660.
As of June 30, AIG's finance arm, which originates first and second mortgages, recorded delinquencies of 3.68 percent in subprime, 2.13 percent in nonprime, and 0.81 percent in prime.
AIG, the world's largest insurer, said total delinquencies in its $25.9 billion mortgage insurance portfolio were 2.5 percent, but did not give year-ago figures.
It said 10.8 percent of subprime mortgages were 60 days overdue, compared with 4.6 percent in the category with credit scores just above subprime.
"Problems in July have gone beyond the subprime market," said Bill Bergman, an analyst with Morningstar. "Maybe not AIG, but some of these lenders have been whistling in the dark."
(Reporting by Ed Leefeldt)