June 4 (Bloomberg) -- MetLife Inc., the largest U.S. life insurer, agreed to buy a residential mortgage business from First Horizon National Corp., expanding its bet on the U.S. housing market.

The purchase includes the home loan unit of First Horizon's Tennessee Bank National Association outside of that state, with 230 offices in the U.S., the New York-based insurer said today in a statement. MetLife said it isn't acquiring any subprime or Alt- A mortgages in the purchase. Terms weren't disclosed.

MetLife is expanding its banking services after agreeing in April to buy a reverse mortgage specialist from Jacksonville, Florida-based EverBank Financial Corp. Life insurers including No. 2 Prudential Financial Inc. and Principal Financial Group Inc. reiterated last month their strategies of investing in mortgages even after the meltdown of the subprime home market prompted writedowns and stock drops.

``They're probably calling a bottom on prices or close to it,'' Alan Devlin, an analyst with Atlantic Equities LLP in London, said of MetLife in an interview. ``It does tell you that they are willing to step in and make investments and confident enough in their capital levels.'' Devlin rates MetLife ``overweight.''

MetLife fell 54 cents to $59.07 at 4:00 p.m. in New York Stock Exchange composite trading. The shares declined 4.1 percent this year, beating the 11 percent slump in the 24-stock KBW Insurance Index.

`Capital is King'

First Horizon will sell unpaid mortgages of $20 billion as part of the deal, and MetLife will service some of the bank's loans, the lender said. The Memphis-based bank, Tennessee's largest, said in its statement it would reduce assets in its mortgage banking segment by at least $3 billion by Dec. 31, freeing up $200 million in capital.

The sale ``removes significant earnings volatility and frees up capital at a time when capital is king,'' Morgan Keegan analyst Robert Patten said in a note to investors. Patten rates the company ``outperform.''

The bank said it would take a charge of $50 million to $70 million this year in connection with the MetLife deal.

First Horizon, struggling to shore up its balance sheet and conserve cash after losses tied to home loans, posted a first- quarter profit of $7.9 million after losing $248.6 million in the last quarter of 2007.

First Horizon rose 40 cents, or 4.2 percent, to $10.02. The shares have slipped about 45 percent this year.

U.S. life insurers had about $294 billion in mortgage loans at the end of 2006, or about 11 percent of their assets, according to the National Association of Insurance Commissioners. The companies invest premiums before paying claims.

The First Horizon deal, expected to be completed in the third quarter, ``will significantly accelerate the growth potential of MetLife Bank's residential mortgage business,'' Donna DeMaio, president of the insurer's banking unit, said in a statement.

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Linda Shen in New York at lshen21@bloomberg.net

Last Updated: June 4, 2008 16:19 EDT