In The Media – Articles About Impact

Insurers Investing in Low Income Mortgages
2000 The National Underwriter Company
National Underwriter,
Property & Casualty/Risk & Benefits Management Edition

October 2, 2000

Eight major insurance companies doing business in California have formed an investment consortium that recently purchased $ 40.5 million worth of mortgages for housing for low and moderate income families throughout the state, said a consortium official.

The purchase helped free up money for new mortgages for low income housing and also provided a good investment for the insurers, said the official.

Impact Community Capital LLC, the consortium formed by the eight insurers, purchased the mortgages for 12 rental unit housing properties from the California Community Reinvestment Corporation, a Glendale, Calif. based nonprofit lending group funded by 45 banks and thrifts throughout California.

The 12 properties contain a total of 1,456 units for low and moderate income families, said Daniel Sheehy, president and chief executive officer of Impact Community Capital in San Francisco. The properties in the Impact loan pool provide housing for families with incomes that do not exceed 60 percent of the area's median income, according to an Impact statement.

"By purchasing $ 40 million [in mortgages], we give them fresh new capital," Mr. Sheehy said, explaining that by purchasing the mortgages, Impact allowed CCRC to provide additional mortgage loans for housing for low and moderate income families.

The insurers in the consortium – Farmers Insurance Companies, Pacific Life Insurance Company, Allstate Insurance Company, PMI Mortgage Insurance Company, SAFECO Insurance, State Farm Insurance Companies, Teachers Insurance and Annuity Association and 21st Century Insurance Company – are also gaining benefits from the mortgage purchases.

Mr. Sheehy said the individual mortgages might not be investment grade, but through pooling and securitization they "achieve a credit rating [that] makes these investments more acceptable to insurance companies."

Moreover, "insurance companies find it difficult to purchase single mortgages on these types of properties because they require a particular expertise," he said.

Laszlo Heredy, vice president and chief investment officer for Los Angeles based Farmers, said that the mortgage package was a win win situation.

"The eight companies were pioneers in making investments in community related projects that also make good investments," he said. "This securitization [product] was quite competitive."

The Impact system makes insurers likelier to participate in the purchase of these types of mortgages by allowing them to conform to California Insurance Department regulations that impose "significant capital penalties" on insurers that invest in projects without a credit rating, Mr. Sheehy said.

"There is a significant sense of satisfaction in community investing," he said. "But they are doing it with a more credit worthy community investment portfolio."

Mr. Sheehy pointed out that one of the mortgage properties is owned by a not for profit housing company that is an offshoot of the United Farmworkers Union, an organization dedicated to improving the working and living standards of farm workers.

Impact is not the only insurer sponsored organization that is increasing its community involvement.

The Alliance of American Insurers recently announced that it had joined the Urban Insurance Partners Institute, a Chicago based group that seeks to be "the insurance industry's leading urban affairs organization," according to an Alliance press release.

The Alliance, which represents 326 property and casualty insurance companies and is based in Downers Grove, Ill., will pay about $ 5,000 in annual dues to join UIPI, said Patrick Musick, assistant vice president for property casualty for the Alliance.

He said it was "a good precedent for our member companies to see that the Alliance was participating in reaching out to the urban community."

Many small, rural member companies want to sell in urban markets, but don't have the expertise, he said, adding that "this gives them an opportunity to participate in urban markets."

UIPI acts as a facilitator between the small rural insurers and urban "community organizations, including economic development and neighborhood revitalization groups," said Rodger Lawson, Alliance's president. Moreover, "the institute allows companies to learn about the urban market and become involved without a huge outlay of resources," he said.

Mr. Musick pointed out that there is also a growing sense that insurance companies have to increase their presence in urban markets because of government policy and H.R. 21, a catastrophe insurance bill that includes an amendment that would compel some insurers to comply with the Fair Housing Act.

The FHA forbids redlining by mortgage lenders and the catastrophe insurance bill would extend that antiredlining provision to insurance.

If H.R. 21 passes, "Congress will for the first time acknowledge that FHA applies to the business of insurance," said Pamela Allen, vice president for Federal Affairs for the Indianapolis, Ind. based National Association of Mutual Insurance Companies, which vehemently opposes the bill.