Net real estate income was $1.9 million for the year ended December 31, 2001, as compared to $0 in 2000 and 1999. Real estate income is attributable to the inclusion of ILCO's investment income with FIC's from the period from May 18, 2001 to December 31, 2001. Real estate income is earned from the leases on the buildings at River Place Pointe, which is owned by Investors Life. Rental income was received during the entire year 2001, while the buildings only produced rental income for the second half of the year 2000.
The investments of FIC's insurance subsidiaries in mortgage-backed securities included collateralized mortgage obligations ("CMOs") of $170.7 million, and mortgage-backed pass-through securities of $31.2 million, at December 31, 2001. Mortgage-backed pass-through securities, sequential CMO's and support bonds, which comprised approximately 46.8% of the book value of FIC's mortgage-backed securities at December 31, 2001, are sensitive to prepayment and extension risks. FIC's insurance subsidiaries have reduced the risk of prepayment associated with mortgage-backed securities by investing in planned amortization class ("PAC"), target amortization class ("TAC") instruments and scheduled bonds. These investments are designed to amortize in a predictable manner by shifting the risk of prepayment of the underlying collateral to other investors in other tranches ("support classes") of the CMO. At December 31, 2001, PAC and TAC instruments and scheduled bonds represented approximately 53.2% of the book value of FIC's mortgage-backed securities. Sequential and support classes represented approximately 31.3% of the book value of FIC's mortgage-backed securities at December 31, 2001. In addition, FIC's insurance subsidiaries limit the risk of prepayment of CMOs by not paying a premium for any CMOs. FIC's insurance subsidiaries do not invest in mortgage-backed securities with increased prepayment risk, such as interest-only stripped pass-through securities and inverse floater bonds. FIC's insurance subsidiaries did not have any z-accrual bonds as of December 31, 2001. The prepayment risk that certain mortgage-backed securities are subject to is prevalent in periods of declining interest rates, when mortgages may be repaid more rapidly than scheduled as individuals refinance higher rate mortgages to take advantage of the lower current rates. As a result, holders of mortgage-backed securities may receive large prepayments on their investments which cannot be reinvested at an interest rate comparable to the rate on the prepaying mortgages. For the year 2002, the investment objectives of FIC's insurance subsidiaries include the making of selected investments in CMOs.
As of December 31, 2001, only $4.7 million was invested in mortgage loans as compared to $0 at December 31, 2000. The increase is due to the inclusion of Investors Life's assets on FIC's consolidated balance sheet for the year 2001. At December 31, 2000, ILCO's Balance Sheets included a $4.9 million investment in mortgage loans. The Company does not make new mortgage loans on commercial properties. Substantially all of the Company's mortgage loans were made by its subsidiaries prior to their acquisition by the Company. At December 31, 2001, none of the mortgage loans held by the Company had defaulted as to principal or interest for more than 90 days, and none of the Company's mortgage loans were in foreclosure.
3. Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999.