" As a follow up another bank was willing to make the loan but their reserve requirements were so ridiculous it effectively killed the deal."
What type of loan was he trying to get? If he was trying to get an interest only loan, then the reserve requirements would be much higher. It also sounds as if you are trying to get a jumbo loan; is the loan amount higher than $729,750? I guess I should have picked up on that by you saying they were approved for over 1 mil. GSE guidelines won't make a difference since it's non-conforming if we are talking over $729,750 in SF county.
If it's a loan amount of $729,750 or less in SF county and the loan to value if 96.5% or less for FHA or 90% or less for conventional, there should be no issues with the distance and reserve requirements are not strict; in fact, for FHA they are non-existent.
If it's a true jumbo, you should definitely see a broker that has access to portfolio lenders that specialize in this type of scenario. Walking into B of A or Wells is not going to be the thing to do with outside the box loan scenarios.