What We B*tch About (Or Talk About on the Beach)


(image via Wexas Travel)

Don’t wish it were easier…Wish you were better.” – Jim Rohm

I had a conversation recently, with a client seeking a new line of credit. We are in the middle of his refinancing, combining his first mortgage with his existing line of credit (L/C). This is a common request from borrowers who want to eliminate the uncertainty of an L/C, which is usually tied to the prime rate and is basically an adjustable loan. In most cases, after combining two loans into one and getting approval, we apply for the subordination of the existing L/C, which now is paid off and has a zero balance. That means that after getting a new fixed rate loan, borrowers will still be able to tap into their equity, as long as the remaining equity is not more than 80% LTV. In the case of our client, his L/C will mature after 10 years, which is going to be next year. He wanted to be sure that he will be able to get a new L/C. When I mentioned that one of the lenders we are going to apply to is U.S. Bank, he liked that since there is a branch close to his house.

After our initial conversation, my client went on vacation to Europe. He returned with very exciting stories about Vienna, Prague, and Budapest. Then as he got back to the reality of the mortgage business, he started to complain about U.S. Bank. Before leaving for his trip, he made monthly payments on outstanding bills…or so he thought.

Somehow U.S. Bank did not receive his payment on time. While visiting Prague, he received a call from his daughter that U.S. Bank urgently asked him to contact them. He finally placed a call to discover that his monthly car payment bill for $120 was due some time ago and there were no records of payment received. The bank agreed to wait for two weeks until his return home. Upon arrival, he went to the bank, made a payment, and received another call from U.S. Bank that same day, saying they did not receive payment. Now getting irritated, (the caller was not as nice as the first one), and feeling “unjustly” accused, it turned out that it takes 24 hours for the record of payment to show up. As a result of this unpleasant experience, my client no longer likes U.S. Bank or wants anything to do with them.

How many times have you been pissed off and made a hasty decision like this one?


(image via Dr. Pinna)

I look at the situation from a different point of view: U.S. Bank did my client a huge favor and he should be very grateful. In spite of his best intentions and efforts and claims, the bank did not have records of his “original” payment. Sh*t happens. If he did not receive a call from the bank and missed the payment, this would create a 30 day late payment on his credit history; this alone could drop his credit score down 100 points. I do not have to spell out what it means for the refinancing process.

Photo by Manny Kagan: I like to photograph from the air and have a number of interesting images. This photo was taken approaching San Francisco.

I read that 90% of airplanes use a navigation system to charter their course, yet the pilot still manually brings the plane back to reach its desired destination. The mortgage business is similar. When we receive loan documents from clients and submit them to the lender, there are many issues which seem to take over the progress of the course. Lenders have many unnecessary conditions and make errors. Appraisers mistakenly under-appraise the value of properties. Borrowers do not provide all the necessary documents on time or take vacations in the middle of the loan process. As a result, we have many reasons to complain and bitch about and we do.

In the end, we only have one destination and that is to get a good loan with a low interest rate…and we do.


Best Wishes,


How to Say Good-Bye to a Friend


(image via Teresa Teixeira)

You Need Me.” – Myrna Rothman Elgie

In August 1996, Ed Crane, a fellow mortgage broker and I, spearheaded the establishment of the first chapter of BNI in the San Francisco Bay Area.  BNI, which stands for Business Network International, is the world’s largest referral organization, founded by Dr. Ivan R. Misner in 1985.  There are weekly breakfast or lunch meetings, where members re-introduce themselves at each meeting, and give each other referrals. The resulting activity after the meetings is what actually makes a successful chapter.  Members meet, become friends and through the process refer business to one another. 

Over the years, we’ve had many members come and go, but the original core group of five members is still together.  Today we have about 30 members.  Sadly, last week we lost one to cancer.  Myrna Rothman Elgie joined our chapter about 10 years ago.  Her business card stated “Interior Design” but Myrna was more than that.  At our last meeting each of us spent 30 seconds sharing our appreciation of who she was.  Her specialty was to work with existing furniture and fixtures, to add color, plants or simply lower art work on the wall, to make any room, office or even the garden look beautiful and functional.  She re-did our living room and my study at home and lowered the pictures in my office.  Myrna’s skills and talents made her clients’ spaces more enjoyable.  Now that she is gone, I regret that I deprived many of my friends and clients of the joy they could have, if I only encouraged more of them to use Myrna’s services. 

Myrna was a spiritual person who meditated everyday. One of the BNI members told us a story; she asked Myrna how she dried her hair after showering.

Myrna replied, “I do not use a blowdryer. I only put on curlers and meditate.”

The woman asked, “And it dries?”

Myrna said, “Well, I meditate for a long time.”

Once a year, Myrna would travel to India for a few months. Upon her return, she would bring a suitcase full of beautiful scarves and sell them to BNI members. This was one of the best holiday presents.

Once a year, Myrna would travel to India for a few months. Upon her return, she would bring a suitcase full of beautiful scarves and sell them to BNI members. This was one of the best holiday presents.

Indian<br />
(image via Damon Lynch)

I do not think about Myrna when I work on my heavy desk, which we have pushed together to the right place in my study, but her life work is there.  In my 30 seconds at the BNI meeting, I said that I want my work to be like Myrna’s.  I do not want anyone to think about me after my clients get what they want or need; whether it’s a lower rate, a better mortgage, their dream house, or just peace of mind knowing that what they have is good for now.

I also said that I want to bring my friends the joy of meeting with other professionals I know, to benefit from their experience, while they and I are still alive.  As I’ve done in the past, I will write about people I know whose expertise I trust.  It can be members of BNI or any of my clients.

One of the BNI members Michael Wolfe mentioned that Myrna used to say: “You need me”.  Since she is gone, I am going to take over this statement: “YOU NEED ME.”

Michael is the owner of Blue Sky Services.  He is a general contractor, and his team has done an excellent job in big and small projects including painting and restoration.  He performed different jobs in our house and office.  Michael is also a musician and songwriter.  He delights our BNI holiday parties with his songs and guitar playing. You can reach Michael at 415-235-6227 or call me.

P.S. I took this photo from the living room of a client in Berkeley, during their house warming party.




Best Wishes,

Manny<br />

What I Am Grateful For…And You Might Be Too

Thanksgiving Cornucopia

(Thanksgiving Cornucopia via Iron Bay Computer and Design)

“The Unthankful heart…discovers no mercies; but let the thankful heart sweep through the day and, as the magnet finds the iron, so it will find, in every hour, some heavenly blessings!”–Henry Ward Beecher

A friend asked me if I am ready for the Thanksgiving holiday, to which I replied, that for me… I give thanks every day. Every morning upon awakening, I recite a Hebrew prayer:

            “I gratefully thank you, O living and eternal King. For you have returned my soul within me with compassion – abundant in Your faithfulness!”

Then when I am completely awake, I reason:

            “If the King would not return my soul, who would thank him?”

Why has the simple act of saying “Thank you” become a holiday? According to the article on the Plimoth Plantation Website, “to the Puritans, a true Thanksgiving was a day of prayer and pious humiliation, thanking god for his special providence”.

Black Friday
(Black Friday 2009 // Photograph by Manny Kagan)
What a surprise! I thought it was created to have a “Black Friday Sale”, and for families stuffing themselves with turkey the day before. But what does this bird have to do with the actual celebration of the end of the fall harvest? It is very simple. 

When the Pilgrims arrived on the shores of America, they were hungry. Turkeys were easy to catch and voila! Combining two events together—a new tradition was born in the middle of the 17th century. For vegetarians, who do not eat turkey, but want to keep the tradition (or even for those who do not want to feel as stuffed as a turkey after the meal), there is an inflatable one, like this one that I saw in a second-hand store.

Inflatable Turkey
(Inflatable Turkey // Photograph by Manny Kagan)
Now let me tell you what I am grateful for. I am grateful that after a week of no telephone service, our telephone system came back to life. AT&T blamed Hurricane Sandy for why it took so long to solve the problem. (If one believes it.) Now clients can actually reach us.

I am grateful that “Mortgage rates at record lows boost recovery”. You may read the entire article in the SF Chronicle.  The article stated, “the percentage of loans in the foreclosure process was down”. Thanks to historical low interest rates, we can help many borrowers.

I am grateful that the Federal Reserve Chairman, Ben Bernanke, said that underwriting standards for mortgages are too tight and that reduced credit availability “slowing the revival  in housing and impending the economic recovery” (Reilly, Wall Street Journal). I hope it will not take another four years for regulators to remove the brakes and allow mortgage industry to revive; especially since the government owned mortgage enterprises, like FHA, are actually bankrupt.

I am grateful that those who read my book liked what I have written. One of the readers, Samuel Freshman–author of The Smartest Way to Save, which I strongly recommend, wrote:

            “Manny Kagan’s The Mortgage Game, is one of the best outlines of the mortgage market that I have come across. I recommend it to anyone who wants to get more familiar with the mortgage industry to read it before applying for a loan.”–Samuel Freshman, author.

P.S. If you want to save trees, you can read my book on a Kindle or a Nook.


Best Wishes,


How to Finance Dacha


(Stalin’s Dacha via Crimean Backpackers)

Home is a place you grow up wanting to leave, and grow old wanting to get back to.  ~John Ed Pearce

I grew up in Riga, Latvia, where every summer our family would rent a house on the seashore on the Gulf of Riga, in an area called Yurmula. Each village had its’ own train station that was accessible by an electrical train.

There are wonderful things to experience in the area, including the cold water beach, forest, and river. Children would spend most of their days playing while parents would arrive after work, after a 45-minute train ride from Riga. In the evenings, we would go for walks along the water. It was a marvelous experience. A summer home in Russia is called a Dacha. When my wife and I bought our second home in The Sea Ranch many many years later, we called our home Dacha as well. We sold it a number of years ago, but we still love to visit the area and rent a house in The Sea Ranch. According to my wife, it’s one of the best places in the world.

Second homes are popular and there are specific areas like Lake Tahoe, where people buy beautiful homes with the hope to visit them often, which usually does not happen. Therefore, these homes end up in the rental pool to help offset mortgage payments. When it comes to financing, borrowers receive the same interest rate for their second home as the first one (i.e. lowest rate) during the purchase. To qualify for those low rates, lenders combine all the expenses, (i.e. mortgage payments, taxes, and insurance–called PITI–for both “owner occupied” properties), and divide it by the borrowers income to arrive to the first qualifying ratio.  This is usually where we have the first problem. Borrowers often do not show enough income to stay within a 45% qualifying ratio. The typical solution is to declare a second home as a rental property, which it will normally become anyway, and to show the potential rent to offset the PITI. This in turn creates additional challenges. First, the rate for rental properties is slightly higher and the down payment has to be larger.

In addition, there is the rule of four properties. There are only a few lenders who can lend to borrowers who own between four to ten properties, but with restrictions. For example, borrowers who have more than four properties can finance a second home, but not a rental property.

Then there is an issue of the appraisal value. Many second homes that are not as desirable as the first ones lose their original value.

A client came to us recently to refinance his second home. In his case, it was not rented; so we could help him, even though he owned a total of six properties. The problem we faced was that he had a first mortgage and an $80,000 credit line. But unfortunately, we could notuse the solution I described last week (i.e. combining the first and the L/C). The estimated value of the home only allowed us to refinance the first mortgage, which had the 6.75% rate. It seemed that we were at a dead-end. Then I asked him what the interest rate and the loan type was on his primary residence. As it turned out, we not only could add $80,000 to his first mortgage on the house, but also lower his existing rate, with a total savings of about $2,000/month.

P.S. In my book, one of my recurring messages is, when there is a wish, there is a way. You can read more of my clients’ stories and discover how we found solutions for them just by clicking here.

Recently I had an opportunity to introduce my book to 30 members of the BNI (Business Networking International) Chapter in San Francisco, which I started 16 years ago. Here is my presentation:


Best Wishes,

Manny                                             Signature

1 + 1 = ?


(image via The New Yorker Cartoon Bank)

The hardest arithmetic to master is that which enables us to count our blessings.  ~Eric Hoffer, Reflections On The Human Condition

In my book, I write a story about a company that looked for an accountant. In the job interview, they just asked one question:

“How much is 1 + 1?”.

The first candidate said “Two!”.

The second candidate said “Three!”

The third asked “How much do you need?”

In the book, the story supports my description of how mortgages were done in “the good ole days”, when stated income was a norm.

Today this story comes to mind in a completely different context, though still connected to the past. Before choosing a loan, one has to ask themselves, “What do we need?” or what are our choices.

Before the end of 2008, when everything changed and property values dropped, it was very easy to get an equity line or a line of credit (L/C). Now, many borrowers who have first mortgages and L/Cs are facing a number of issues when trying to refinance their first mortgage for a lower rate.

If the combined balance between the two loans is less than the conforming limit of $417,000, the most common practice is to combine two loans together, since there is no increase in the interest rate. If there is enough equity, we can also apply for the subordination of the L/C, (i.e. borrowers will still have an L/C available to them without any current balance).

It becomes more challenging when the first mortgage or combined amount is higher than $417,000. Those loans have higher interest rates to start with, so when the first mortgage is combined with an L/C, it is considered cash-out refinancing; which results in a rate increase. Meanwhile, some lenders have adjustable programs that are fixed for 3, 5, 7, or 10 years, and offer excellent alternatives. You can see some of the options I presented to a client in a recent email:

“Dear Mark,

I reviewed your mortgage and here is my analysis; you have a number of alternatives:

You can refinance your first mortgage for $460,000 @3.625% at 30 years fixed with monthly payments of $2,097.84.  Or 15 years fixed @ 3.0% with $3,176.00 in monthly payments.  Both options are with no out of pocket closing costs.  This is possible because lenders offer rebates.  You can lower the rate by paying closing costs.  Your credit line of $125,000 has to be subordinated, which we’ll do after your first mortgage is approved. 

Consolidation of the first mortgage with the line of credit (L/C) will create a new loan of $585,000 which is considered a cash-out and therefore is priced at 4.25% 30 years fixed.  At the same time, you can get $585,000.00 fixed for 7 years, and adjustable after that, at the rate 3.3% and monthly payments of $2,562.00.  If you choose to pay more, as you are doing now, (I was basing on 15 years amortization with monthly payments $4,225.00), the balance of your loan after 7 years is going to be $347,684.00.”

No one knows what will happen in the next 7 years; however the interest rate on your L/C will probably go up.  By paying down your new mortgage on the accelerated scale, you can bring the loan amount to the conforming limit, which has the lowest rate.  You might have a concern that fixed rates will never be low again.  And I agree – no one has a crystal ball.  But I am an optimist; if it happened once, why would it not happen again?

P.S. And Men, don’t forget about your Wive’s intuition…

During our initial conversation with Mark, he claimed that his wife wanted a 30 year fixed rate while he preferred a 15 year. Shortly after my email, Mark and his wife, Joan called me, and we discussed proposed options and it was Joan who had the last word.

Her response was very simple:

“We are not going to live in this house for another 7 years; I like the security of one loan with a low interest rate. Though we talked to other companies, I would like you to help us. You are the only one who gave us options.”


Best Wishes,


You Do Not Need Credit Scores

(image via Kruse & Crawford)

“A man who pays his bills on time is soon forgotten

 Oscar Wilde, writer, poet

Hang on, didn’t I write in my newsletter a few weeks ago, in Credit is Queen, that credit scores are a decisive factor in the mortgage game? We can compare a credit score to weight loss. Generally, people don’t hop on the scale constantly to check changes in weight loss, nor do they pay to do so. Other than a scale, there are simple factors to assess whether one has gained weight (clothes not fitting for instance)…And the solutions are relatively simple, like eating less carbs and cutting down on sugar. But no one in his right mind would write to the scale manufacturer, to complain that the scale is showing the wrong number, or expect that the federal government provide assistance to reach those scale manufacturers.

What prompted me to write this nonsense were two articles written by Kathleen Pender: Consumers Get New Help on Issues with Credit Reports and Credit Scores May be Free–But Aren’t Fico, which both appear in the San Francisco Chronicle.

In my book, I write in detail about credit scores and their effect on one’s mortgage. But it seems that credit scoring has become a big business, peddled by the banks and the credit bureaus.

Credit Bureaus
The only time borrowers require a credit score is when they apply for a mortgage or any other credit related needs. There are three credit agencies: Trans UnionEquifax, and Experian. Though they all use a variation of the FICO scoring system, their numbers vary. Mortgage lenders use the average number, regardless which agency reported it.

If there are two people applying for a mortgage, the lenders will use the lowest out of the two scores which is by itself an arbitrary rule.

There are many factors that can affect the score and in addition to this there are variations of scoring models. The score which is sold through some websites is called “educational” and is useless for mortgage qualification, and in my view, is a waste money.

Each industry has their own criteria like auto insurance or rent, and the scores will vary from one to the other. Besides, there are other scoring models like Vantage Score. Therefore, Wells Fargo offering a “free” credit score is a marketing gimmick to draw people into their branches and in my mind is very misleading.

But the Consumer Financial Protection Bureau (CFPB), which was set to monitor banking and mortgage activity by the government and is paid by your and my money, is not going to protect borrowers from the banks misleading tricks to get customers.

One of the CFPB’s functions is set to handle complaints and there are thousands of consumers who have reasons to complain. As far as credit reports and scores are concerned, I do not think complaints can really make a difference, but advice from an experienced mortgage professional can. Through many years of experience, we know what can affect the score and what actions consumers can take to improve it.

If you know someone who needs a mortgage and might have problems with their credit score, please do not hesitate and contact me. But first read my book. The credit is only one of the 5 C’s one needs to get a mortgage.


There are a few simple rules on how to have an excellent credit score.

  • First, something your grandmother may have told you, if you cannot pay your credit card bill at the end of the month, do not use plastic, or at least create a budget.
  • ALWAYS pay your bills on time. If you are travelling or have an emergency, ask someone reputable to do it for you. Paying online might help, if you have enough money in your account, but mistakes do happen.
  • Do not allow medical bills, or any other disputes go into collection. Pay first, then dispute. This alone will save you a lot of aggravation and can make a difference in getting or not getting a mortgage.
  • You can check your credit report (not scores) for free(www.freecreditreport.com) once a year for possible errors.
  • If planning to apply for a mortgage and suspect that your credit scores might be affected negatively, start the process three months in advance.



Best Wishes,

Manny<br />

A Small World

Small World
(image via The New Wage Truth)

“Never doubt that a small group of thoughtful, committed, citizens can change the world. Indeed, it is the only thing that ever has.”
Margaret Mead

I received an email from a friend (who often refers me new clients), asking me if we do commercial loans. Our company is very unique. We are experts in every type of real estate loans. This week, we are working on a loan for the acquisition of a retail showroom, purchase/construction for two residential spec buildings, a refi loan for a hotel, a purchase of an industrial building, and a refi for a number of apartment and mixed use buildings.

One of the new referrals came from my corporate/real estate attorney, who has a client who needed to refinance an owner occupied industrial building. His loan had a balloon after five years, and the bank refused to renew his mortgage. When I inquired for the reason, he did not know, but informed me that he had short sales on two of his residential properties. My first reaction and obvious solution was to apply for an SBA loan. When I called my friend Bill Hand, who helps me with SBA loans, not only did he know the building, five years ago he helped the borrower to get financing for it. Bill also warned me that the client does not report enough income to qualify for a bank loan and because the borrower had a short sale, he cannot get an SBA loan.

The next step was to try to get a private loan to save the client from foreclosure. To accomplish this, the value of the loan had to be $1,500,000, while the bank appraised it for only $1,200,000. I questioned this value since I recently arranged financing for another building in the same neighborhood in downtown San Francisco and knew that the value had to be higher. To support my point of view, I needed an opinion from an experienced real estate agent, so I called my friend Rick O’Neil. (I wrote about him in my newsletter from last week.)

As it happened, Rick knew the building since only a week ago he found a tenant for the vacant space in the back of the building. While I was doing my research, the owner called his real estate agent Art, who works with Rick, to discuss the possibility to list the building for $1,500,000. Only a week later, Art had a buyer, who agreed to the full price. The buyer needed to get a mortgage. He contacted Wells Fargo Bank and Bill Hand. Bill used to work at Wells Fargo and knew that they would have a problem to approve the loan, but it would take them 60 days to realize it.

Meanwhile, Bill was leaving the bank he was working for. He called me, and there was a simple decision. We agreed to work together since I had sources to find fast solutions.

What a very small world we live in.

Mortgage Game Book

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Best Wishes,

Manny<br />