4 Big Mortgage Backers Swim in Ocean of Debt

But there is a big catch. AIG does not own International Lease outright. A big block of the unit’s stock is actually held by an insurance subsidiary, which uses the shares to secure its promises to pay claims. If AIG sold International Lease and gave the proceeds to the Fed to pay down debt, it would strip too much money out of the insurer, making it insolvent.

So A.I.G. used part of the $2 billion that it recently received from the Treasury to buy back the International Lease shares. That way, when a buyer finally appears, AIG can sell the leasing business and pay the Fed.

“The irony is, for the government to recoup its value, it has to keep its support behind AIG,” said a former company executive, who requested anonymity because of the delicacy of the matter. “The thing is a total Catch-22.”

AIG said it also recently used some money from the Treasury to restructure its mortgage-guaranty business — something GMAC, Fannie and Freddie are struggling to do as well.

All four of the companies had businesses that provided mortgage guarantees. When defaults began soaring in 2007, they all suffered big losses. In some cases, they have insured each other; in other cases, banks or investors have to be paid.

Although GMAC’s main business is financing auto sales, its executives have said its biggest problem is containing the troubles in its mortgage business, known as Residential Capital. “What we want to do, to the best we’re able to, is draw a box around it and say that it is contained,” Michael Carpenter, the new chief executive, told a trade publication in November.

For its mortgage guarantee unit, AIG used some Treasury money to reinsure $7 billion of obligations through a Vermont subsidiary. The terms call for the unit, United Guaranty of Greensboro, N.C., to pay the claims that it can afford and send the rest to the Vermont affiliate.

Little is known about the Vermont unit because the state does not require that type of company to file annual reports. If the Vermont company needs additional money, it presumably could turn to AIG, which can draw more from the Treasury.