We reported over the weekend that California Gov. Gavin Newsom obtained a $2.7 million cashout refi mortgage on his Fair Oaks estate just 90 days after it was deeded to him by an LLC formed by his cousin, Jeremy Scherer. This photo of the Newsoms, tweeted Sunday by Mr. Newsom, was taken in the backyard of that estate.
— Gavin Newsom (@GavinNewsom) July 27, 2020
Now, it looks like that loan and a similar cashout refi the Newsoms obtained on their Marin County mansion in November 2017 are “sweetheart” deals that aren’t available to even the most qualified buyers. Between the two deals – which haven’t been reported on the Governor’s financial disclosure forms – the Newsoms were provided with $3.8 million in tax-free cash.
(Yes, commenters, they still owe that money to the bank, so it’s not like there are no strings attached.)
Two long-time mortgage professionals who spoke to RedState and who specialize in mortgages and refinancing in this price range were “stunned” that the Newsoms were able to obtain these loans and shared dozens of anecdotes where their own customers or associates weren’t able to.
As we reported, on January 27, 2020, approximately three months after receiving the deed to the Fair Oaks home, the Newsoms obtained a cashout refinance for $2,695,000. That’s approximately 80 percent of the home’s appraised value of $3,700,000. There are some circumstances under which borrowers can receive up to 100 percent of the home’s value in a cashout refinance, but “jumbo” loans (loans over approximately $700,000 in Sacramento County) are customarily restricted to no more than 80 percent of the home’s value. Still, obtaining a jumbo cashout refi is complicated and nearly impossible in 2020. Mortgage professional Thomas Zabel, who’s worked in all facets of the industry since 2005, told RedState:
“Banks tightened up the guidelines on cashout refi’s in 2019, including decreasing the loan-to-value (LTV) percentage and some requiring that the borrowers have $1,000,000 plus in liquid assets available. Even then, a cashout of nearly $2.7 million on a $3.7 million home in January 2020 simply wasn’t available to any qualified borrower that I know of.”
In addition, the Newsoms would need to have the deed for much longer than 90 days before being considered for a cashout refi. An Orange County real estate agent/former mortgage brokerage owner told RedState:
“Borrowers have to have the deed for at least six months to get a cashout refi. Period. Even my highly qualified borrowers with millions in liquid assets are held to that standard. Obviously a bank can make whatever loan they want to make, but there’s no way you or I can walk into a bank and get that kind of deal. It doesn’t exist.”
That wasn’t the first time the Newsoms’ “lucked” into a deal that no one else could get – and both of the refinances were done with the same bank, Union Bank. Prior to their move to Sacramento, the Newsoms lived in a ritzy hilltop home in Marin County with views of the San Francisco Bay. They moved to that home in 2011 from San Francisco, taking out a $1,760,000 mortgage on the $2,225,000 purchase price. They refinanced in 2013 for $2,175,000, and then again in October 2017 for $3,225,000 – netting at least $1 million in cash.
The home was worth $3.5 million at the time, according to Zillow.
Assuming that Zillow “zestimate” is correct, that means that the Newsoms obtained a cashout refi for more than 90 percent of the home’s value, which is way outside the norm for jumbo loans. Again, both of the mortgage experts RedState consulted with said there is no way a regular borrower would be offered this loan, even with a sterling credit score, abundant income, and cash reserves.
And, according to a Union Bank rate sheet obtained by RedState, although the bank offers cashout refinancing for primary homes up to 80 percent loan to value (LTV), the maximum a borrower can receive is $750,000.
According to the Wholesale Rate Sheet for Jumbo products, even with a stellar credit score a borrower cannot obtain more than $2,500,000 for a purchase, Rate/Term refinance, or Cash Out refinance, and at that amount, the maximum LTV is 70 percent. The Newsoms’ loans were at 92 and 80 percent, respectively.
While this rate sheet is for 2020, the linked underwriting guidelines and required reserves linked are from December 2019, when the Newsoms would have been applying for the Cash Out on their Fair Oaks Home.
The Newsoms still own the Marin County home, though they publicly announced on January 29, 2019, that they were listing it for sale for $5.9 million. The home was taken off the market in June 2019, and they listed it as real property on their 2019 Form 700 (Statement of Economic Interest) and claimed more than $100,000 in rental income.
Because of the potential conflict of interest “sweetheart” loans present, elected officials in California are required to report them on their Form 700. Schedule B, “Interests in Real Property,” states:
“Personal loans and loans received not in a lender’s regular course of business must be disclosed as follows.”
The Marin County refinancing is notably absent from the Newsoms’ 2019 Form 700.
Between the two homes, the Newsoms have approximately $6 million in mortgage debt.
Californians deserve to know what’s behind these deals. Where did the $3.7 million to purchase the Fair Oaks property originate? Why was Newsom given these deals? If he is such a successful, wealthy businessman, why does he need these cash-outs? Why isn’t the 2017 cash-out reported on his 2017, 2018, or 2019 Form 700’s? Will he report the 2020 cash-out on his 2020 Form 700? Are Newsom’s personal finances as much of a shell game as the State of California’s? What, if anything, does Union Bank expect from Newsom in return for these deals?
Author: Jennifer Van Laar