Fannie Mae and Freddie Mac are beginning to feel a spirited tug-of-war with the life insurance company sector again.

Lenders such as MetLife, Prudential, New York Life, Northwestern Mutual, Principal, and Nationwide are re-engaging the market more with each passing month. While most of the deals they win are on low-leverage business for large loans in major metros, some are willing to stretch up to 75 percent loan-to-value (LTV) and many are now offering interest-only terms.

“The life company re-entry into the market started occurring in the third quarter, but it has risen more quickly than we thought in the fourth quarter,” says William Ross, an executive vice president at Minneapolis-based Northmarq Capital, which serves as a correspondent to dozens of life companies. “They’re not just limiting to 65 percent but offering very competitive 70 to 75 percent [LTVs].”

And not every life insurance company is a big-game hunter—some that are growing more competitive, such as Aviva and Sun Life, will look at loans down to $5 million.

While the government-sponsored enterprises (GSEs) still hold a sizable pricing advantage, companies like Principal and MetLife have come inside of the agencies on shorter-term executions, brokers report. Life insurance companies are having the most success on deals that fall outside of the GSE credit boxes—for pre-stabilized assets, for instance, or in markets where concessions are beginning to rapidly burn off. 

“The agency underwriting is more backward-looking, so in those types of circumstances, life companies can be more flexible and often be a better execution,” says Mark Wilsmann, managing director for New York-based MetLife. “And life companies can be more user-friendly in terms of documentation and having flexibility to tailor the deal to the borrower's needs.”

Furthermore, the GSEs are so inundated with fourth-quarter business that some borrowers are finding more success elsewhere. Berkadia Commercial Mortgage will soon close a $140 million multifamily loan through one of its major life insurance company correspondents.

“They won the deal because it’s an ease of execution,” says John Cannon, executive vice president of Horsham, Pa.-based Berkadia. “We’re seeing life companies start to pick off some deals, especially now because Fannie and Freddie are so backed up.”

MetLife Leads the Way
MetLife has been leading the charge this year among balance-sheet wielding life insurance companies, and the firm’s appetite for apartment deals will only increase in 2011.

This year, the company allocated about $1.6 billion to lend on multifamily assets, and while it will fall a little short of that mark, MetLife has seen its multifamily debt volume rise 50 percent this year over last. It’s done more balance-sheet lending for apartments than any other insurance company this year, according to the New York-based market research firm Real Capital Analytics.

And MetLife expects bigger things to come next year. As all-in rates on GSE debt begin to rise, companies such as MetLife anticipate a more competitive market next year.

“This year there’s been a window of opportunity where, on many loans, life companies can be price competitive with the agencies,” Wilsmann says. “Commercial mortgages are a favored investment sector for us, and we expect to have even more money available next year to lend than we have this past year.”

MetLife also sees a big opportunity next year in its fixed-rate construction-to-permanent debt program for multifamily properties. It is currently quoting a couple of $100 million-plus multifamily deals. “The primary thing we’re taking off the shelf would be our construction-perm program for multifamily,” Wilsmann says. “We haven’t done anything new there for three years.”

One competitive advantage the firm has over banks is in blending the construction and perm loans, allowing borrowers to lock in interest rates for 30 years. Another big advantage is that banks shy away from large construction loans, instead syndicating them among many institutions.

The Federal Housing Administration (FHA) offers a similar program, but it too is shying away from large loans and from Class A assets. What’s more, MetLife can close a construction-perm loan in two to three months, in contrast to the FHA’s molasses-slow pace.

Hearing Footsteps
Many life companies lost multifamily assets out of their portfolios as borrowers flocked to the GSEs to refinance over the last few years. So, the sector is trying to win back some apartment business to better balance their portfolios.

The GSEs, and their lenders, have certainly taken notice. “It doesn’t happen every day, but on some transactions, they beat us on spread, on business that we would have normally won,” says Mike May, senior vice president at McLean, Va.-based Freddie Mac.  “That was kind of surprising,”

As the yield on the 10-year Treasury continues to rise, the all-in rate from the GSEs has also surged up to nearly 5 percent. The GSEs are pricing loans on average between 185 to 225 basis points over the benchmark, which is a bit high by historical standards and gives life companies an opportunity.

“If we continue to see increased rates on the GSE side, we’ll continue to see increased competition from life companies,” says Don King, head of agency lending at Boston-based CWCapital.

Insurance companies are notorious for cherry picking—only looking at large loans for the best assets in the best markets. But they’re not completely risk-averse. “They do seem to have more limitations on the markets that they’ll aggressively lend in,” says Heidi McKibben, head of multifamily production at Washington, D.C.-based Fannie Mae. “But they also will offer more aggressive proceeds on assets that might be pre-stabilized by agency terms.”

And you can’t argue with success—MetLife’s multifamily delinquency rate is currently zero.

Top 10 Insurance Lenders of 2010 by Dollar Volume*
1. MetLife
2. Prudential
3. Northwestern Mutual Life
4. New York Life
5. John Hancock Life
6. Principal Life
7. MassMutual
8. Aviva Life & Annuity
9. Nationwide Life
10.  Symetra Life
Source: Real Capital Analytics 
* Through Sept. 30, includes all commercial real estate