Life insurers are stepping up pressure on banks as providers of commercial mortgages.
Fitch Ratings Annual Life Insurance Report, noted that life insurance companies originated 7 percent more mortgages last year. The majority of these were commercial mortgages and most were tied to multi-family properties. This year life insurers expanded their share of the mortgage market. Banks are increasingly seeing life insurance companies as viable competitors.
In recent years life insurers have barely managed to keep pace with commercial banks in terms of lending. Just last quarter however life insurance companies surpassed banks in the number of loans they issued, originating 25 percent of all commercial real-estate loans according to the Mortgage Bankers Association. Lending by banks was down 5 percent over the same period and is down 21 percent when compared to the same time last year. By March 31st the Fed claims life insurers have a stake in 11.3 percent of the commercial mortgage market, far than smaller the share held by commercial banks. Still life insurance companies are stepping up their investments in commercial real estate, and some banks are not able to keep up.
Like many life insurance companies see real-estate as a worthwhile investment. Life insurers concentrate particularly on multi-family properties. Life insurance companies see multi-family housing as a stable investment that offers steady returns. Mark Talgo senior manager of real estate investment at New York Life claims the company concentrates on, “multifamily assets, because they tend to be less capital-intensive and less volatile.” Life insurance companies held 68.5 billion in multi-family mortgage debt as of the first quarter. This is a 28 percent increase since 2013. This expansion into the multi-family market has a been a success for life insurers. “If you look at life [insurance] companies, the delinquency rate on multifamily mortgages is zero. … It’s hard to fathom that they could be performing any better they are,” said VP of commercial real estate research at the Mortgage Association James Woodwell.
Life insurance companies are competing with banks to offer commercial mortgages to high quality borrowers.
Life insurers have exceptionally high standards when it comes to borrowers. Life insurance companies are in now in direct competition with banks to lend to high quality borrowers. Life insurers often can offer lower interest rates and mortgages with longer terms. Some banks are finding it hard to compete. “When we look at where we’re losing deals or being refinanced out, it tends to be longer-term mortgages provided by the insurance companies at spreads that are thinner than we can do,” says Darren King CFO at M&T bank in Buffalo .
Still it seems unlikely that life insurers will become a major source of commercial mortgages any time soon.
Life insurance companies will likely to continue to provide mortgages only to borrowers with exceptional credit. Likely they wont be competing with banks in terms of mortgage volume. But traditional banks are facing competition on all sides, not just from life insurers but from non-bank lenders as well. As life insurance companies expand their lending efforts, smaller banks may be crowded out in the face of this new competition.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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