The roles played by life insurance companies in the mortgage market

Life insurance companies make substantial investments in commercial as well as residential mortgage properties. Commercial mortgages make up more than 60 percent of mortgage obligations held by life insurance companies, with residential units accounting for between a third and a quarter of their mortgage total. These companies will search national and international markets for good mortgage investments instead of focusing upon only one or a few local areas.
In the past, life companies strongly preferred government-guaranteed mortgages. In recent years, however, the higher yields available on conventional mortgages have caused some shift of emphasis toward these more risky loans. Despite the greater flexibility of conventional home mortgages, life insurance companies have been gradually reducing their holdings of home mortgages and emphasizing commercial and apartment mortgages. Commercial and apartment loans often carry "equity kickers," which permit the lender to receive a portion of project earnings as well as a guaranteed interest rate.
At the end of 1980 life insurance companies held about 9 percent of total mortgages loans outstanding in the United States. This market share placed them third among private mortgage lenders, behind savings and loan associations and commercial banks. This high ranking is due in part to the fact that life insurers are the largest institutional holder of farm mortgages; stand second only to commercial banks in mortgage loans for commercial properties, and rank second to savings and loans in apartment loans. However, in making loans to finance one-to-four-family residential dwellings, life companies rank a distant fourth among all private lenders. For example, at year-end 1980 they held only $18 billion in one-to-four-family residential loans, compared to $65 billion for mutual savings banks, more than $160 billion reported by commercial banks, and nearly $420 billion held savings and loan associations.