AIG Lending Unit Could Bring More Pain

American International Group's (AIG Quote) toxic ties to the secondary mortgage market may have cost CEO Martin Sullivan his job, but overlooked trouble brewing at a consumer lending unit could continue to weigh on the insurance giant.

AIG officials have noted that mortgage lender American General Finance, which the insurer acquired for $23 billion as the housing boom started to ramp up in 2001, has contributed to its recent problems. But despite AIG's insistence that American General's underwriting standards were conservative, a longtime branch manager in Southern California tells TheStreet.com a different story.

According to the source, who requested anonymity for fear of reprisals from his former employer, American General was aggressively involved in the predatory lending tactics and delinquent underwriting standards that led to financial disaster and a storm of public criticism at subprime mortgage giants like Countrywide Financial (CFC Quote).

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"We weren't really intending to make sloppy loans, but we did it because of the intense pressure they put on us to make real estate loans and meet our profit goals, so everyone was always cutting corners," says the source, who is starting to worry about his pension now that shares of AIG are down 42% in 2008. "This was greed, and we took advantage of uneducated, unsophisticated, low-income people that had no idea what they were signing."

American General was ranked by Inside Mortgage Finance as the nation's 14th-largest subprime lender last year. The company had $27 billion in assets, 1,550 offices in 45 states and over 2 million customers.