Q&A on Life Insurance Company Loans
The following are excerpts from the 2/27/18 interview:
Q: Boroumand: Are Life Insurance Companies portfolio lenders?
A: Friedeberg: Yes. Most Life Insurance Companies lend money from their balance sheet and treat the loans as a long term invested assets. Life Insurance Company lenders generally hold between 5-20% of their assets in commercial mortgages. They may move this allocation up or down depending on factors such as: A) the relative yield that they are receiving on commercial real estate loans versus other investments. B) Perception of exposure to the asset class. C) Perception/opinion of the Chief Investment Officer.
Q: Boroumand: Can Life Insurance Companies offer fixed rate loans for longer durations than other types of lenders such as banks?
A: Friedeberg: Yes. Every Life Insurance Company has different investment needs, but it is common for Life Companies to offer 3,5,7,10,15,20, 25 and sometimes even 30-year fixed rate loans. An Insurance Company’s ability to provide different terms is dictated by which product types they sell on the insurance side of their platform.
Q: Boroumand: Are Life Insurance Companies good multifamily lenders?
A: Friedeberg: Yes. Life Insurance Companies do like to lend on multifamily properties. They compete well with agency lenders, CMBS lenders, and banks in this space. It is uncommon for agency lenders, CMBS lenders, or banks to compete with Life Companies when it comes to securing fixed rate loans longer than 10 years in duration.
Q: Boroumand: Do Life Insurance Companies only make low leverage loans?
A: Friedeberg: No. Every Life Insurance Company has its own profile of risk that it is willing to take on its invested assets. Some Life Companies are only competitive in making low leverage loans, while others are willing to make loans up to 75% of value.
Q: Boroumand: Do all Life Insurance Company loans have restrictive or long-term prepayment penalties?
A: Friedeberg: No. Although yield-maintenance prepayment penalties are preferred to retain the long-term investment, many Life Insurance Companies can structure flexible prepayment penalties. There could be some combination of loss of yield calculation and step-down prepayment penalty, but there could be open periods structures as well.
Q: Boroumand: Do all Life Insurance Companies work through their mortgage banking relationships?
A: Friedeberg: No. Not all Life Insurance Companies work through correspondent mortgage banking relationships, but a strong mortgage banking company will have many exclusive and semi-exclusive correspondents (servicing) relationships as well as “open market” relationships. A full-service mortgage banking firm can provide certainty of execution by accessing their diverse network of lending relationships.