Because mortgage production for life companies continues to dominate the commercial mortgage banker's output, MBA continually focuses on issues related to regulations and model investment laws affecting life companies' ability to invest in commercial and multifamily mortgages. Although the individual states regulate life insurers, the National Association of Insurance Commissioners (NAIC) was created to assist state regulators in supervising the financial condition of interstate companies. The NAIC has exposed for consideration several drafts of a model law that authorize insurers' investments.
Through the leadership, dedication and perseverance of its members, MBA has succeeded in securing changes to the many versions of the model investment law, also known as the Investments of Insurers Model Act. Efforts escalated in September of 1993, when the NAIC's Model Investment Law Working Group (MILWG) released a Discussion Draft that would have subjected life companies to excessively restrictive underwriting criteria, including limits on loan-to-value (LTV) ratios of: 1) 70 percent for self-amortizing commercial and multifamily loans with no greater than a 30-year term; and 2) 60 percent for bullet loans where the principal balance at the end of the term exceeds 5 percent of the original principal. MBA members, through the able leadership of Rodrigo Lopez (Woodmen of the World Life Insurance Society), chair, Commercial Real Estate Finance (CREF) Life Insurance Companies Subcommittee, acted quickly and aggressively to combat these provisions. Initiatives included conducting an industry impact survey, holding a press conference to release the survey results, contacting and meeting with appropriate state and local political officials and filing formal comments with the MILWG. The involvement of CREF Life Insurance Subcommittee vice chairs Gary Chaplin (Manufacturers Life Insurance Company) and Joe Forte (Thacher Proffitt & Wood) and CREF Council chair Jack Hastings (UNUM Life Insurance Company), furthered Mr. Lopez's consensus-building approach and proved critical in structuring oral and written arguments that would shape future MBA policy regarding life insurance regulators' model investment laws.
At MBA's 1994 Cref/Multifamily Housing Conference, members of CREF's governing body approved a resolution directing MBA to support a "prudent insurer approach" to a model investment law, or if unacceptable, to increase the LTV ratios to limits that would permit them to compete in the marketplace. A "prudent insurer approach" would leave investment decisions to insurance companies' investment officers to act within recommended parameters. The MILWG released a new draft of its model investment law, the Investments of Insurers Model Act Exposure Draft, on August 15, 1994. This version increased the LTV ratios from 70 percent to 80 percent for self-amortizing loans and from 60 percent to 75 percent for bullet loans. Despite these improvements, MBA members expressed concerns in several other areas. These concerns were articulated in public testimony by member Jim Nelson (Eberhardt Company) at the NAIC's public hearing held on October 4, 1994.
Once again, MBA members pressed for amendments to the model investment law, outlined in a 16-page comment letter to the NAIC. Specifically, 17 changes to the August 1994 Exposure Draft were recommended. Closure on several contentious issues was reached after numerous conference calls, face-to-face discussions with and cooperation among Mike Prior (Protective Life Corporation), Ralph Pelton (Northwestern Mutual Life Insurance Company), Jon Weinberg (Ameritas Investment Advisors), Gary Riggs (then of Allstate Insurance Company), Drew Boggs (American United Life Insurance Company), and Rodrigo Lopez. In October 1994, Ken Hargreaves (Massachusetts Mutual Life Insurance Company) and Royce Bluhm (United of Omaha Life Insurance Company), assumed the roles of the CREF Life Insurance Subcommittee chair and vice chair, respectively. Throughout their tenure, MBA further developed and refined its position, translating its recommendations into legal language and presenting these twelve amendments to the MILWG for their consideration at their January and April 1995 meetings.
MBA members tailored their lobbying strategy to continue pursuit of a prudent person alternative to the Exposure Draft's pigeonholed approach under consideration by the MILWG, while simultaneously supporting modifications to the Exposure Draft. Throughout the spring and summer of 1995, MBA members met with numerous state insurance department officials critical to the model investment law approval process. In their meetings, MBA members stressed this two-pronged lobbying strategy and cited the following priority amendments: 1) increasing the LTV ratio for bullet loans from 75 percent to 80 percent, provided pay down of principal begins immediately and the amortization period does not exceed 30 years;
2) eliminating the 30 percent of admitted assets restriction on commercial (including multifamily) andloans combined;
3) extending the time period from three to five years before noncomplying foreclosed real estate is considered a nonadmitted asset; and
4) adopting a "legal for life" treatment of mortgage loans, i.e. if a mortgage loan qualifies at origination, it remains legal upon its extension, modification or refinance.
Practical discussion by MBA members of the Exposure Draft's potential effect on the industry, communicated at continuous and extensive grass-roots meetings with insurance department heads and their staff, resulted in the MILWG's successful adoption of the first three amendments cited above. Members devoting significant time to this effort include: Ron Poe (Dorman & Wilson Inc.); Ray Smith (Dorman & Wilson Inc.); Jim Nelson (Eberhardt Company); Dianne Orbison (Minnesota Mutual Life Insurance Company); Jon Weinberg (Ameritas Investment Advisors); Bob Maher (Woodmen of the World Life Insurance Society); Michael Knudsen (Mortgage Bankers Association); Pete Ulrich (California Mortgage Bankers Association); Drew Boggs (American United Life Insurance Company); and Jack Cohen (Cohen Financial Corporation). To further strengthen MBA's position, these amendments were incorporated into a broader life insurance industry package cogently crafted by Mike Andersen (John Alden Financial Corporation). In addition to these first three amendments, Drew Boggs' depth of knowledge regarding credit lease transactions authorized under the Indiana statutes, and his ability to convey his position effectively to key insurance regulators, cemented approval of MBA's amendment to exempt certain credit lease transactions from the LTV ratios embodied in the Exposure Draft. The MILWG deferred consideration of the legal-for-life amendment, pending the NAIC recodification of its accounting standards affecting this issue. Most recently at their September 1995 zone meeting in Philadelphia, the NAIC Executive Committee recommended the January Commissioners Conference consider appointing a working group to pursue a prudent person model act alternative. The NAIC approval process will involve MBA's continued commitment but members' extensive involvement in this process has paved the way for the life insurance industry's ability to effectively compete in the commercial mortgage marketplace. The success of these individual members is yet another example of MBA members making it happen!