Manny Kagan

The answer might surprise you, but in spite of the huge apparent difference they can all be called “Jumbo”.

When I fly across the country on a Jumbo jet, I always have my camera with me. These two images were selected from many photos I have taken throughout the years in the air and on the ground.

(Image via Manny Kagan: Landing in a snow storm in New York)

Jumbo Shrimp is of course an oxymoron.

Jumbo mortgages are loans over $625,000. They are primarily offered by portfolio lenders and have different underwriting guidance. But here is where the confusion creeps in.

In terms of the terminology, loans up to $417,000 for single-family residence (SFR) are conforming; for 2 to 4 unit properties limits arehigher. And if the property is in Alaska or Hawaii, the limits are different again. Loan limits from $417,000 to $625,000, with their own scale of limits for 2 to 4 units, can appear under different names–some are called “Jumbo Conforming”. Then there are FHA loans which can go up to $729,750 for SFR and even higher for 2 to 4 Units. Loans for units have higher interest rates and some additional restrictions. The same goes for Jumbo Conforming, while real jumbos have completely different structures. You can borrow up to $5 million with limited LTV.

All jumbos have a reserve requirement, but the amount varies between lenders. Sometimes borrowers pay the balance down to get to a conforming limit, or we break the loan into “first” and “line of credit” (L/C) to get a better interest rate.

We are currently helping clients with quite a few jumbos. The amounts vary from $675,000 to $1,500,000 and every client has different preferences. I am sure you have a few friends who could use my help to get them Jumbo mortgages.

P.S.

The holiday season is upon us!

(Image via Manny Kagan: One source can bring a lot of light)

When I wrote last week’s email, my daughter Tamar asked why I did not write about Chanukah. One of the reasons was that I did not have an appropriate image to illustrate it. I wanted to photograph all eight lit candles, which was only possible on Saturday, the last night of Chanukah. (Actually, there are nine, but the one in the center, called “Shamash” or “attendant” is there to light the other candles). The holiday of Chanukah, and the tradition to light eight lights (in ancient times, they were olive oil lamps) commemorates events that happened in the 2^nd Century BC. The nine-branched Menorah or hanukiahcomes in different shapes and forms. However, there is only one very clear message. One light (one day) at a time, with the help of others, can illuminate our lives for many, many days and years.

And since Christmas is next week and you can light all the lights at once on the Christmas tree, I included an image that I photographed from Macy’s with my iphone last week.

(Image via Manny Kagan: Union Square, San Francisco)

HAPPY HOLIDAYS!

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“If you do not raise your eyes, you will think that you are the highest point.”–Antonio Porchia

I got a call from a client who received a letter that offered a 2.75% mortgage. We are in the middle of refinancing his 30-year fixed rate loan. He specifically came to my office to show me the letter, which you can see below with questions on whether or not I can get him such a low rate:

(click through to enlarge)

He only saw the numerical rate, but did not seem to notice that it was offered for a 5 year fixed FHA program that has an additional 1.25% monthly mortgage insurance payments. Some lenders spend thousands of dollars on mailings just hoping to catch clients who are drawn in by the low rates. After explaining about the “fine print” of the letter, I offered my client a 2.75% fixed for fifteen years with the closing costs. The only problem was that his monthly payments would be about $1,000 more than the loan fixed for 30 years at a 3.50% rate with no closing costs (which he ended up choosing).

Since interests are so low, we have been refinancing our clients’ loans that closed as early as this past April. One such client wanted her rate to be 3.375%. She checked rates online and called me almost daily to share her findings. My response was always the same, let me check my computer. We have a special program that reports daily rates from different lenders. Sometimes the information changes a few times a day, but at least this information is reliable and we can lock the rates that we see on our computer program. Because lenders are overwhelmed by the volume of applications, we have to lock rates for 60 days (to complete the loan), which can be different from the rates advertised online by East Coast lenders for a shorter period of time.

In this client’s case, we decided not to lock the rate but let it “float” instead, until the lender receives an appraisal report and the majority of conditions. At that time we can lock for 30 days. It is a gamble. In my book, you will find a similar case, but with a twist and a surprising outcome.

In spite of today’s low rates, some of my clients procrastinate, perhaps being overwhelmed by the process. My assistant Samantha is very good at helping make it a smooth process. Please act while rates are still very low.

P.S.

The gift giving season is upon us. I am sure that some of your friends will be very grateful to receive my book, The Mortgage Game: The 5 C’s and How to Connect Them from you as a present. You can also download it for your Kindle or Nook. If you need a more elaborate present, feel free to contact my friend Phil Wiseman at UPP (Unique Product and Promotions). He sent me a basket to congratulate me for my book publishing. It was awesome.

P.P.S

(image via Manny Kagan)

Last weekend I was in Dallas, Texas for a conference. We stayed there with friends and their neighborhood had a lot of elaborate Christmas decorations. The image above is my creative rendition of a tree covered with lights.

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“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.

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“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.

(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.

 

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“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 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 17^th 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 // 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.

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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.”

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(image via Kruse & Crawford)