Prudential Eyeing Return to Single-Family Mortgages

Article excerpt

NEW YORK--The Prudential Insurance Company of America is considering a return to the business of single-family home finance, company officials say.

"With what's happening in the secondary markets, we really can't afford not to look at it," said William Wendt, vice president of Prudential, the nation's largest life insurance carrier.

Prudential once funded as much as $700 million a year in mortgages as investments and to attract possible insurance customers, Mr. Wendt said.

"But we essentially stopped in 1964," he added.

The industry as a whole changed investment philosopies at that time. Commercial property, particularly through ownership and development, then offered higher returns and without the problems in servicing thousands of small mortgages.

Prudential and other insurers since have largely let the old, fixed-rate loans in their portfolios mature without replacing them.

With the rise of adjustable-rate loans and the entrance of Wall Street, however, Mr. Wendt said the mortgage markets look more attractive again.

"Insurance companies are coming to appreciate that home mortgages are now solid investments because of changes in the secondary market," Stephen Glennon said recently.

The president of Lepercq De Neuflize & Co., investment bankers, Mr. Glennon recently predicted that "at least one company may move back into the mortgage markets in a big way" -- though he did not say which company. To Originate Mortgages Too?

Insurance companies already are buying more mortgage-backed securities.

But Prudential may lead the life insurance industry back into originating mortgages, Mr. Wendt said.

"And Prudential carries a lot of gravity because of its size," said Robert Waldron, New York director of the American Council of Life Insurance. "Where Prudential goes, others follow."

Insurance companies held an average of about 20% of all outstanding U.S. mortgages in the 1950s, said Patric Hendershott, a mortgage finance expert at Ohio State University.

That market share plunged to 2% of outstanding mortgages in 1978, he added.

Single-family mortgages accounted for some 56% of the real estate portfolios of insurance companies in 1962, Mr. Waldron said. That dropped to about 12% by 1982.

While insurance company mortgage investments have come back some since then, "their share of the market has barely increased," Mr. Hendershott said.

But new mortgage securities, particularly the birth last summer of collateralized mortgage obligations, have been designed with insurance and pension funds in mind.

The obligations, or CMOs, can customize mortgage portfolios and make their maturities more predictable.

"Now that Wall Street is involved, the market has all kinds of capabilities," Mr. …