The Federal Reserve


announced Wednesday that it was declining an offer from American International Group (NYSE: aig) to buy the mortgage-related assets it holds in its Maiden Lane II portfolio.

Instead of selling the assets as a block to a single buyer, the Fed says it will sell the assets in individually and in blocks in a "competitive process." Earlier reports have said that the Fed was considering an auction for the assets.

The Fed acquired the mortgage-related assets in connection with the bailout of AIG in 2008. At the time, they were considered to be "toxic."

AIG had offered $15.7 billion to purchase the assets, which have a face value of $30 billion. At that price, the Fed would have made a profit of over $1.5 billion.

"In light of improved conditions in the secondary market for non-agency residential mortgage backed securities (RMBS), and a high level of interest by investors, the Federal Reserve believes that conditions are right for ML II to begin more extensive asset sales while taking appropriate care at all times to avoid market disruption," the Federal Reserve said.