Now that Bill and Hillary Rodham Clinton have canceled their original, controversial $1.35 million mortgage deal to buy a $1.7 million house in Chappaqua, N.Y., what sort of new loan have they replaced it with?
Not one that most of us--even if you're in their income bracket--could dream of walking away with. Though on the surface it appears to be simply an extra-large version of a garden-variety mortgage that thousands of home buyers negotiate every week, in fact it has some unusually generous terms.
Any analysis of the first family's new home mortgage is complicated by the refusal of their lender to discuss any aspect of the transaction. But here's what we know: The Clintons have signed up for a "3-1" adjustable-rate mortgage, a type of loan that combines a fixed rate for the initial three years of a 30-year term, then metamorphoses into an adjustable rate that can float up or down once every 12 months. Rate movements are tied to rates on one-year Treasury bills. In the fourth year of the Clinton mortgage, they'll pay 2.75 percentage points over the prevailing one-year Treasury rate. At each one-year interval, the rate will be adjusted using the same formula. For the first three years, the fixed rate will be 7.5 percent.
The Clintons' new lender is PNC Mortgage, a subsidiary of Pittsburgh's PNC Bank Corp. PNC Mortgage is a heavy hitter in the industry, ranking 12th in new home-loan origination volume nationwide during the first half of 1999.
Like millions of other couples, the Clintons are making a 20 percent down payment. On a $1.7 million purchase price, that comes to $340,000. The mortgage amount will be $1.36 million. But according to White House spokesman Jim Kennedy, the Clintons will be paying zero points on the transaction. According to mortgage brokers active in the jumbo loan market, a deal like the president's would usually involve at least one point. (A point equals 1 percent of the loan amount. One point on a $1.36 million mortgage is $13,600.)
The only way borrowers normally avoid points altogether is to pay a higher note rate. That is, the fees are built into the interest rate and paid back over time. Yet the Clintons' 7.5 percent is about the current going market rate for a super-jumbo loan of this size.
But the lack of points is not the key sweetheart ingredient in the Clintons' loan. The big concession by PNC to the First Family comes in the ordinary-sounding 20 percent down payment. Most lenders offering super-jumbo loans of $1 million and higher won't allow borrowers to put up only 20 percent. They require at least 30 percent, and often 35 percent to 40 percent. Especially if you're asking for a market-rate loan, to say nothing of a zero-point deal, you've got to pony up more cash.
Lenders active in this arena, such as Bank America Mortgage, North American Mortgage and Chevy Chase Bank, normally require more substantial equity investment than 20 percent by high-income buyers because they face potentially high losses on the resale of big-ticket houses in the event of a foreclosure. Loan brokers checking "rate sheets" circulated by these and other jumbo lenders last week could find no company offering 20 percent down payment deals, even on loans smaller than the Clintons'.
"Nobody can get that deal off the street," said Paul E. Skeens, senior loan officer at Carteret Mortgage Corp. in Fort Washington, Md. "Of course, I suppose there is a difference if you're the president of the United States."
Skeens says he currently has a loan applicant whose situation could be considered comparable to the Clintons'. The borrower is a top executive with a West Coast high-tech company who is transferring to the Washington area. The executive has a higher current household income than the Clintons--in the upper six figures--plus $750,000 cash in the bank and a spotless credit history. (The Clintons reported $1 million in assets, but also have about $5 million in legal-fee debt.)
Once in the Washington area in his new position, the West Coast executive expects to double his salary, putting him in the seven-figure annual-income class, Skeens said. But on his current income he can't qualify for the house he wants to buy--a $2.5 million property. Plus, he prefers not to disclose all of the tax returns, assets, etc. that most jumbo lenders demand to see for a loan in this bracket.
The best deal around for a super-jumbo candidate like this? Skeens says it's probably going to be 40 percent down ($1 million cash), plus two points and an interest rate around 8.5 percent.
Henry Savage, president of PMC Mortgage Corp. in Alexandria, had this to say about the president's new mortgage: "If he were Joe Blow, he'd have had a hard time getting that loan. Did he get special treatment? Absolutely."