real estate finance - full book (500 pgs)

The laws governing life insurance companies

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Unformatted text preview: idential mortgage investments. Loan originations most commonly take place through mortgage bankers rather than directly. Role in Mortgage Market – While investment in residential mortgages by life insurance companies has been declining, they are an important source of funds for large, multi–million–dollar apartment and commercial projects. Dynasty School (www.dynastySchool.com) 3-7 REAL ESTATE FINANCE They also make significant purchases of mortgage–backed securities guaranteed by the GNMA. Life insurance companies are also important to non–residential mortgage lending. CHARACTERISTICS OF LIFE INSURANCE COMPANIES The chief lending characteristics of life insurance companies include the following: The average cost of funds to life insurance companies is generally lower than the cost of funds to the S&Ls because dividends to participating policyholders are usually paid at a lower rate than the interest paid on savings accounts. Life insurance companies are less concerned with liquidity than with the safety and long–term stability of an investment. Therefore, they display a propensity to finance the larger real estate projects, leaving the smaller loans to other lenders. Loan–to–value ratios are apt to be on the cautious side, frequently less than 80 percent. Life insurance companies have the broadest lending powers of the Institutional lenders. Their investment policies are flexible and cover a wide range of financing activities. The laws governing life insurance companies' activities vary from state to state. Under California laws and regulations, any company not incorporated within this state, but doing business here, is subject to the same restrictions that are placed upon California–based companies. Payback terms are long, usually 30–year amortizations, with occasional lock–in clauses that prevent a loan from being paid off before a specified date. For example, there might be a 10– or 15–year lock–in clause on a 30–year loan. Interest rates and other fees on conventio...
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