‘Movable Mortgage’: Big Savings for Borrowers

Buyer A contacts seller B and arranges mortgage terms, C, with lender D.

Two years later, after renovation, the piece of income property goes back on the market and the daisy chain is repeated with new identities for A (the buyer), possibly D (the lender) and most certainly C, the mortgage terms.

But under a new mortgage instrument just introduced by BBH Mortgage Co., a wholly owned subsidiary of the Bank of Beverly Hills, the all-important C becomes as portable as a pair of socks.

“As far as we can tell,” according to Sy Ellis, chairman of BBH’s board, “we’re the only one in the state, and possibly the only mortgage company in the country, to offer what we call the ‘movable mortgage.’

“It simply permits the commercial borrower to transfer the balance of his income property loan to still another property without paying points, or,” Ellis added, “if the loan amount is increased, the fees are applicable only to the incremental amount.”

Avoided in this process is the necessity of going back into the mortgage market with every new acquisition and starting from scratch--with a brand new mortgage and brand new points on the gross amount.

“For instance,” Ellis said, “we have a Beverly Hills investor right now who’s interested in an older commercial office building on Beverly Drive selling for $1.1 million. As in the past, he’ll renovate the property, re-lease it, and then sell if off, hopefully, at a profit in a year or two. He called us about a $700,000 first trust deed on the property.

“We’ll charge him maybe a point-and-a-half, or a point-and-three-quarters, and the interest rate and the loan fee will be about one-quarter-percentage point higher than for a normal loan,” Ellis added.

But the payoff on the surcharge comes with the investor’s next acquisition--and subsequent ones.

“Maybe on his next building,” Ellis said, “he’ll need $800,000. There’ll be an appraisal on the new property and a small processing charge but the loan fee itself will be based only on the $100,000 difference between the first and second acquisitions.”

And, while such “movability” is limited to one a year, there is no other limitation on how many times such a roll-over may be used by an individual investor--two, three or 10 acquisitions later.

Even on a single roll-over transaction, the savings can be impressive. “Suppose,” Ellis said in illustration, “you buy an apartment building with a $1.5-million loan. On the basis of 1 1/2 points, the cost to you would be $22,500. A year and a half later after you’ve renovated it (the building), you either sell it or trade up and have the need of increasing your loan to $2 million.”

Conventionally, this would be a whole new ball game and, on the basis of 1 1/2 points, the out-of-pocket cost on the $2 million would be $30,000. “But,” Ellis said, “because the mortgage is movable, we’re talking about 1 1/2 points on the spread between the $1.5-million first loan and the $2 million loan on the second property, $500,000, or only $7,500.”

On a transaction where the dollar amount remains “flat”--exchanging one $800,000 loan, for instance, for another $800,000 loan, no points are involved.

Clearly targeted at the upscale investor, BBH’s Movable Mortgage is currently available from $500,000 to $2.5 million on first trust deeds only with a 30-year amortization and with maturities between 10 and 15 years. All such mortgages are also adjustable with interest rates pegged to 2 1/2 to 2 3/4 percentage points above the 11th Federal District cost of funds index.

An eight-year veteran with the Bank of Beverly Hills’ mortgage loan subsidiary, Ellis was formerly manager of Allstate Savings’ (now Sears Savings) major loans and joint venture department.

Despite some innovative, and widely imitated ventures into the mortgage field--such as the introduction of the “jumbo” residential mortgage (up to $5 million), and the “bow tie” mortgage during the money crunch of the early ‘80s (the first commercial loan involving negative accrual)--”we haven’t had a commercial loan foreclosure in the last eight years,” Ellis said.

BBH has also been a leader, Ellis said, in the creation and funding of Freddie Mac (Federal Home Loan Mortgage Corp.) multifamily (apartment houses) loans.

“We sell them off to Freddie Mac and the investor gets a fixed rate, 10-year mortgage with a 30-year amortization--currently at 10 3/4%--and, as you know, a fixed rate mortgage for this purpose is pretty hard to come by in this market.”