Life Insurance Company Loans

Commercial and Apartment Financing

An Insurance Commercial Real Estate Loan is a mortgage that is provided by a life insurance company or conglomerate of life insurance companies and is secured by a first lien position on the subject property being financed. Most life insurance companies favor the “four food groups,” for their collateral (apartment, office, retail, and industrial properties), but may finance other property types (i.e. hotel or mixed used) on a case-by-case basis. These loans are typically best suited for transactions that have strong borrowers with good credit, newer, well-maintained properties, low leverage, and where the collateral is situated in or around a major MSA.

Loan Type	Property Type *	Min Loan Amount	Max LTV	Term Length	Amortization	Rates
Insurance	A, H/M, I/W, MU, O, R	$5,000,000	75%	5-30 Years	15-30 Years
A = Apartment H/M = Hotel/Motel I/W* = Industrial/Warehouse MU = Mixed Use O = Office R = Retail
Additional Information: \| Underwriting Requirements \| Loan Features \| Prepayment \| Servicing

Underwriting Parameters

For life insurance loans, Lenders have continued and even strengthened their conservative approach toward underwriting the cash flow of the collateral as well as the borrowers and sponsors. As part of the underwriting process, Insurance Companies are simultaneously assessing the risks of default while trying to minimize such risks, so they require detailed borrower and property information. Underwritten cash flows are based on “in place” income and rents rather than anticipated income or further rent escalations and leases are analyzed with closer scrutiny to ensure market rates. Insurance Loans require a more conservative loan to value (LTV) with maximums for most lenders between 60-75%, and debt service coverage ratios (DSCRs) of at least 1.25-1.35x, Lenders are also calculating the anticipated debt yield (net operating income/loan amount) of at least 8-10%. Additionally, Borrowers should expect to have “hard cash” equity invested in their projects, while being able to maintain a reasonable post-closing liquidity. Prior commercial real estate ownership experience is highly desirable.

Loan Features

erm Length and Amortization: The length of term and amortization depends heavily on the institution providing the funding as well as the property type. Terms can vary from 5-30 years with amortizations ranging from 15-30 years. Depending on the way the loan is structured, it may “balloon” at the end of the term, meaning at the loan balance will need to either be refinanced or paid off; otherwise the loan is self-amortizing, meaning that the loan will be fully paid off when the loan matures, so there is no loan balance to pay off (unless the loan is prepaid before it matures).

Recourse: Life insurance loans may be non-recourse, limited recourse, or full recourse loans. If it is non-recourse, the Borrowers are not personally liable for the repayment of the loan and that the collateralized property and its cash flows would be the sole source of repayment of the debt in the event of a default or foreclosure. However, in the event the Borrower actively participates in an activity that could cause harm to the property, Lender, or investors, there could be springing recourse in some limited circumstances; this may include loan fraud, property transfer or subordinate financing without consent of the Lender, voluntary or collusive activity leading to a bankruptcy filing or failure to maintain SPE status, among other such actions. Limited recourse loans makes the sponsors guarantying the loan responsible for a percentage of any shortfall between the loan balance and sales price in the event of default and foreclosure, where the property must be auctioned off as well as any applicable legal and ancillary fees. The carve-outs for the non-recourse loans would also apply. Full recourse loans make the sponsors guarantying the loan responsible for any and all shortfalls between the loan balance and sales price in the event of default and foreclosure as well as any applicable legal and ancillary fees.

Loan Assumption: The vast majority of life insurance loans are assumable, typically for a fee. This can occur when the Borrower wants to sell the commercial real estate that secures the loan, and the Purchaser of the property wants to take the loan over. Once the property sale and assumption is completed, the Purchaser becomes the owner of the property and is bound by the original terms of the assumed loan and the original Borrower/Seller is released from its obligation to the property and the existing loan. The benefit of this structure is that the assumption of the loan allows the Borrower/Seller to avoid pre-payment costs and give the buyer the opportunity to assume a loan that may have more favorable terms than what is at market. Loan assumption is an especially attractive option in high interest rate environments or tight credit environments.

Prepayment Penalty Structures

Prepayment penalty structures vary greatly depending on the insurance company funding the transaction. It may be structured as Yield Maintenance, Breakfunding, Declining (or step-down) prepayment penalty, or may be specially structured to suit a construction or mini-perm loan.

Yield Maintenance The goal of Yield Maintenance is to allow the bond investors to maintain the same yield as if the borrower made all scheduled mortgage payments until maturity. The penalty is typically calculated by a formula contained in the Note of the Loan Documents. The language will vary between different institutions, but will typically have the same two amounts to be repaid, namely: 1) The loan’s unpaid principal balance and 2) a prepayment penalty, which is typically determined by calculating the difference between the loan’s interest rate and the replacement rate (based on the US Treasury or other index that most closely corresponds to the maturity date), with the remaining loan payments discounted back for the time value of money. One thing to keep in mind is that yield maintenance provisions usually contain a prepayment penalty “floor” of at least 1% and allow for prepayment without penalty in the lat 3-6 months of the loan. See the following example for a more mathematical representation of this calculation: (Loan balance at time of payoff) * (note rate – new cost of funds) * (# years left in loan) * (365/360)

Breakfunding: Breakfunding is used in order to prevent the Lender from taking an economic loss due to prepayment of the loan before the maturity date, but the Lender doesn’t make money from the amount due. Breakfunding compares the original cost of funds to the cost of funds at the time of the loan prepayment this difference is then multiplied by the then loan balance and the remaining time on the loan, with the total being discounted back for the time value of money. See the following example for a more mathematical representation of this calculation: (Loan balance at time of payoff) * (original cost of funds – new cost of funds) * (# years left in loan) * (365/360)

Declining (Step-Down) Prepayment Penalty. A declining prepayment penalty may be structured in a variety of ways, but always has the same feature of the prepayment penalty lessening by 1% per step with the last 3-12 (or more) months open to prepay or refinance without penalty. These are usually offered on shorter-term loans (i.e. 5-10 years), but could potentially be offered on longer terms as well. An example of a 5 and 10 year declining prepayment penalty would be the following:

5 Year Declining: 5% of loan amount if prepaid in the first year, 4% if prepaid in the second year, 3% if prepaid in the third year, 2% if prepaid in the fourth year, and 1% if prepaid in the fifth year, also represented as 5-4-3-2-1% or 5% declining.
10 Year Declining: 5% of loan amount if prepaid in the first or second year, 4% if prepaid in the third or fourth year, 3% if prepaid in the fifth or sixth year, 2% if prepaid in the seventh or eighth year, and 1% if prepaid in the ninth or final year, also represented as 5-5-4-4-3-3-2-2-1-1% or 5% declining.

Loan Servicing

Life insurance loans are typically serviced by the funding institution, the originator, or a third party servicer. The Master Servicer is responsible for day-to-day loan servicing practices including collecting loan payments, managing escrow accounts, analyzing financial statements inspecting collateral and reviewing borrower consent requests. All non-performing mortgages are usually sent to the special servicer. The special servicer is responsible for preforming customary work-out related duties including extending maturity dates, restructuring loans, appointing receivers, foreclosing the lender’s interest in a secured property, managing the foreclosed real estate and selling the real estate. Under some situations, master servicers subcontract some of their responsibilities to a primary or sub servicer in order to uphold the servicing standard when they need additional assistance.

Traditional Housing

Fixed-Rate Mortgage: The Fixed-Rate product is for the purchase or refinance of existing, stabilized properties including: traditional, affordable housing, seniors housing, student housing, and manufactured housing communities. Maximum LTV is 80% for purchases and 75% for refinances with a 1.25x DSCR requirement. Loan terms are from 5-15 years.

Structured Adjustable-Rate Mortgage: The Structured ARM product is for the purchase or refinance of existing, stabilized traditional and manufactured housing communities. Senior housing, student housing, and moderate rehabilitation mortgages may be eligible on a case-by-case basis. Affordable housing, bond credit enhancements and substantial rehabilitation are not eligible. The minimum loan amount is $25 million, maximum LTV is 75%, minimum DSCR is 1.0x and terms range from 5-10 years.

Adjustable Rate Mortgage 7-6: The ARM 7-6 product is for the purchase or refinance of existing, stabilized properties including: traditional, affordable housing, seniors housing, student housing, and manufactured housing communities. Maximum LTV is 80% for purchases and 75% for refinances with a 1.00x DSCR requirement at the loan cap rate. Loan terms are 7 years with a 1 year lock-out period and a 1% prepayment premium thereafter.

M-PIRE Mortgage: The M-PIRE product provides first lien and supplemental mortgages for conventional, affordable and cooperative housing that support additional loan proceeds for energy and water efficiency renovations within New York City’s five boroughs. Properties must have a minimum of five units (50 pad sites for manufactured housing) and the Borrower must be a single-asset U.S. entity with all U.S. principals. Maximum LTV is 85% for purchases and 80% for refinances with a 1.20x DSCR requirement.

Supplemental: The Supplemental Loans product is subordinate financing for properties with a pre-existing fixed or adjustable Fannie Mae Mortgage Loan that has been in place for a minimum of 12 months. Maximum LTV is 75% and minimum DSCR is 1.30x. New third party reports may not be required and early rate lock is available for a fee.

Choice Refinance Program: The Choice Refinance product is a streamlined refinance process with more limited documentation for existing DUS Cash or MBS mortgages to be refinanced by the same Lender. Properties must be stabilized and well-maintained and mortgages must be in good standing.

Bulk Delivery Program: Fannie Mae’s Apartment Mortgage Business program provides a bulk delivery structuring option that gives borrowers the ability to arrange financing terms for a group of properties.

Credit Facility Program: Fannie Mae’s Multifamily Mortgage Business provides a credit facility structuring option that gives the ability for borrowers to arrange financing terms for a group of properties on a cross-collateralized and cross-defaulted basis, with property release, property substitution, property addition, borrow-up, and expansion capabilities.

Student Housing

Student Housing Financing: The Student Housing product provides financing options for the finance or refinance of stabilized student housing properties, which is defined as a conventional multifamily property where 20% or more of the units are leased to undergraduate and/or graduate students, or a property that is specifically built or leased for student housing. Properties may be rented on a per-unit or per-bed basis. Maximum LTV is 75%, minimum DSCR is 1.30x.

Supplemental: The Supplemental Loans product is subordinate financing for properties with a pre-existing fixed or adjustable FNMA Mortgage Loan that has been in place for a minimum of 12 months. Maximum LTV is 75% and minimum DSCR is 1.30x. New third party reports may not be required and early rate lock is available for a fee.

Affordable Housing

Affordable Housing Preservation: This Affordable Housing product provides options for preserving the availability and affordability of subsidized rental housing for low-income renters. It is for expiring Low Income Housing Tax Credit (LIHTC) deals, refinancing of tax-exempt bond deals, properties with Section 8 HAP contracts, properties with existing RD 515 and RD 538 loans, and mortgages insured under Sections 202 or 236 of the National Housing Act. Maximum LTV is 80%, minimum DSCR is 1.20x, and loan terms range from 10-30 years.

Green Preservation Plus: The Green Preservation product provides additional loan proceeds to finance energy and water efficiency improvements for existing Multifamily Affordable Housing (MAH) properties that are 10 years or older and meet MAH income and rent restrictions during the loan term. The Borrower must be a single-asset U.S. entity with all U.S. principals. Maximum LTV is 85% for purchases and 80% for refinances with a 1.20x DSCR requirement.

M-PIRE Mortgage Loan: The M-PIRE product provides first lien and supplemental mortgage loans for conventional, affordable and cooperative housing that support additional loan proceeds for energy and water efficiency renovations within New York City’s five boroughs. Properties must have a minimum of five units (50 pad sites for manufactured housing) and the Borrower must be a single-asset U.S. entity with all U.S. principals. Maximum LTV is 85% for purchases and 80% for refinances with a 1.20x DSCR requirement.

Tax-Exempt Bond Credit Enhancement: The Bond Credit Enhancement program provides credit enhancement for tax-exempt bonds issued to finance the acquisition, new construction, refinancing, or moderate to substantial rehabilitation of Multifamily Affordable Housing (MAH) properties with Low Income Housing Tax Credit (LIHTC) rent restrictions. Maximum LTV is 90%, minimum DSCR is 1.15x, and loan terms range from 10-30 years.

Choice Refinance Program: The Choice Refinance product is a streamlined refinance process with more limited documentation for existing DUS Cash or MBS loans to be refinanced by the same Lender. Properties must be stabilized and well-maintained and mortgages must be in good standing.

Seniors Housing

Senior Housing Financing: The Senior Housing product is for the finance or refinance of existing properties that provide Independent Living (IL), Assisted Living (AL), Alzheimer’s/Dementia Care (ALZ), or any combination thereof (e.g. IL/AL/ALZ, AL/ALZ) for senior citizens. Sponsors and Operators must have a minimum of five years experience in the seniors housing industry and a minimum of five stabilized properties. Maximum LTV is 75%, minimum DSCR is 1.30x. for IL, 1.40x for AL, and 1.45x for ALZ.

Manufactured Housing

Manufactured Housing Mortgages: The MHC product provides financing options for the purchase and refinance of stabilized communities where the Borrower owns the Manufactured Housing Community (MHC) sites and associated common amenities and infrastructure. Communities must be professionally managed, with or without age restrictions, and have a minimum of 50 pad sites. Maximum LTV is 80%, minimum DSCR is 1.25x.

Supplemental: The Supplemental Mortgage product is subordinate financing for properties with a pre-existing fixed or adjustable FNMA Mortgage Loan that has been in place for a minimum of 12 months. Maximum LTV is 75% and minimum DSCR is 1.30x. New third party reports may not be required and early rate lock is available for a fee.

Cooperative Housing

Cooperative Property Financing: The Cooperative Property product provides financing options for the purchase and refinance of stabilized properties in eligible markets in which the residents collectively own the building(s) and property through their shares in the cooperative corporation. The cooperative corporation grants occupancy rights to the shareholder tenants through proprietary leases. Maximum LTV is 55%, minimum DSCR is 1.0x.