NEW YORK, Dec 4 (Reuters) - Mark Wilsmann, managing director of Real Estate Investments for life insurer MetLife Inc (MET.N: Quote, Profile, Research), is a man whose attention is very much in demand these days.

"The phone is ringing off the hook," Wilsmann said.

Since the credit crunch virtually shut down the source of mortgages that fueled the commercial property boom of the past several years, commercial property buyers are turning back to life insurance companies, the sector's traditional lender.

It's a decided change from the past few years when borrowers looked to Wall Street for big, cheap loans to fund their commercial buying sprees.

Large Wall Street banks bought billion-dollar mortgages and mixed them with smaller mortgages to create pools of future payments, and then sold commercial mortgage-backed securities (CMBS) supported by those future mortgage payments.

Lenders who plan on securitizing mortgages could offer borrowers bigger loans on easier terms than insurance companies, who keep either all or most of the mortgages on their own balance sheets.

Insurance companies could not compete and saw their piece of the U.S. mortgage pie shrink because they need a steady stream of income to match their liabilities.

Today, the easy lending standards are a thing of the past. Lenders no longer readily provide borrowers with loans based on cash the property may generate in the future rather than what it presently supports. Nor do they loan 85 percent or more of the purchase price.

The pullback in CMBS lending stems from fears that rising foreclosures in the housing market could spread to the commercial real estate market. While commercial mortgage defaults are near all-time lows, bond investors remain sidelined and Wall Street banks are saddled with mortgages they bought but cannot sell in the form of bonds.

Life insurers, with their more conservative lending standards, find themselves back in the game. Their lending terms now compete with the more stringent terms demanded by the CMBS market, Brett White, chief executive of CB Richard Ellis Group Inc (CBG.N: Quote, Profile, Research), said.

"The underwriting that is required today is now traditional underwriting -- rents in place, conservative assumptions on (sales)," White said.

That sent more and more borrowers back to the arms of life insurance companies.

"Before all this happened, we were scouring the edge of the market, there's less need to do that now," said Dave Twardock, president of Prudential Mortgage Capital Co., an arm of Prudential Financial (PRU.N: Quote, Profile, Research).

Last year, Wall Street banks issued $177.3 billion in CMBS bonds, according to Commercial Mortgage Alert, which tracks CMBS issuance. Meanwhile, life insurers provided $44.1 billion in mortgages in 2006, according to the American Council of Life Insurers (ACLI).

Year-to-date, the CMBS market has reached a record $220.3 billion. But as the credit markets seized up, only $31.6 billion of CMBS bonds were issued from September through November, compared with $38.5 billion in March and $37.4 billion in June.

On the other hand, life insurance companies have seen their commercial real estate mortgage business pick up in the second half of the year. Third quarter lending rose 1.2 percent, according to ACLI. In October alone, lending increased 41 percent over October 2006 to $4.8 billion.

Borrowers who had shunned insurers are now on the other side of the table.

"Large REITS (real estate investment trusts) had traditionally done business with Wall Street," Twardock said. "We're seeing some people who had opportunity funds that have come our way."

However, the insurers said they prefer their loyal customers because they have a track record with the lender and the two have built a relationship over the years.

Although borrowers may see the life insurers as their mortgage saviors, the insurers said they believe they cannot fill the void created by the CMBS market's crunch.

"Do the math. The life insurers lent about $50 billion and the CMBS about $200 billion," Wilsmann said.

Many experts said the life insurance companies will gain market share in 2008, but the increase won't be that significant as the market as a whole is expected to shrink as more expensive and difficult capital and the threat of a U.S. recession translates into fewer deals and lower prices. (See www.reutersrealestate.com for the new global service for real estate professionals from Reuters).

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By Ilaina Jonas

© Reuters 2007

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