It
turns out that even the well-off need help in a housing market as crazy
as the one in the San Francisco Bay area, and lenders are elbowing each
other in a rush to provide it. They’re courting …
Silicon Valley Elites Get Home Loans With No Money Down
It
turns out that even the well-off need help in a housing market as crazy
as the one in the San Francisco Bay area, and lenders are elbowing each
other in a rush to provide it.
They’re courting Silicon Valley
workers with tailored loans, guaranteed 24-hour approval and
financial-planning services. Social Finance Inc. has deals with Google
and other top technology companies that allow it to market to new hires.
First Republic Bank -- which gave Facebook Inc. billionaire Mark
Zuckerberg a 1.05 percent interest-rate mortgage -- has opened branches
in Facebook and Twitter Inc. headquarters. San Francisco Federal Credit
Union will finance 100 percent of houses costing up to $2 million.
Michael
Tannenbaum, senior vice president of SoFi’s mortgage group, calls it
“white-glove service.” Lenders often give special treatment to the
wealthy, of course, but the tech industry has created a particularly
ripe crop of clients who are rich or on their way. It’s a smart bet to
cater to a sector that’s created thousands of millionaires and dozens of
billionaires, says Glenn Kelman, chief executive officer of the
brokerage Redfin. The downside is that the most expensive U.S. housing
region is becoming “a no-fly zone for anyone outside technology,”
especially with so many people shut out altogether by tight credit
standards imposed after the 2008 real-estate crash.
What’s
going on “might be good for the borrower and good for the lender,” he
says, “but it’s not necessarily good for San Francisco.”
‘Substantial’ Incomes
The
city’s median home value is $1.13 million, up almost 67 percent since
2011, and the numbers are higher in some nearby towns -- $6.36 million
in Atherton, according to Zillow Group Inc., and $4.12 million in
Hillsborough.
Nick Merz knows how tough it can be. He’s a
41-year-old product designer at Apple Inc. whose wife also works there,
and says they couldn’t figure out if they could afford to own a place
anywhere near the company’s offices in Cupertino, where the median value
is $1.8 million.
One reason: Almost half of their compensation
packages are in Apple shares. So their lender, Opes Advisors, assigned
the couple a financial adviser who used a software program to factor in
debts and future income, including the stock, and the costs of education
over the years for two young children.
‘Scary Market’
The
result? No problem. They could buy in the range they were looking
without jeopardizing their finances. “In a weird housing market, in a
place where a lot of assets are not liquid, it helps to have their kind
of modeling,” Merz says. “They’re catering to people scared by this
scary real estate market.”
For many, it’s not home values that
keep them in rentals but alarming down payments, which can be more than
the cost of the average U.S. house: $187,000. That’s where San Francisco
Federal Credit Union comes in. It started offering zero-down loans in
December to people who work in San Francisco or San Mateo County. The
credit union has more than $100 million pre-approved for 30-year
adjustable-rate mortgages in what’s called the Proud Ownership Purchase
Program for You.
As the tech boom starts to show signs of cracks,
there’s some concern that high loan-to-value mortgages are dangerous.
Silicon Valley venture-capital funding fell 20 percent in the second
quarter from a year earlier, according to a report
by PricewaterhouseCoopers and the National Venture Capital
Association. New companies are staying private longer, leaving fewer
options for shareholders to cash out.
The
median San Francisco condo price rose less than 1 percent in the second
quarter after an 18 percent increase a year earlier, data from Paragon
Real Estate Group show. Inventories of condos listed at $2 million or
more jumped 44 percent -- but the number sold fell 30 percent.
“Lenders
get so caught up trying to stay competitive and finding a market edge,
they basically allow greed to overcome common sense,” says Terry
Wakefield, a mortgage consultant who co-founded one of the first online
direct lenders in 1998. “Easy money does fuel and accelerate the
inevitable bubble.”
And the notion of 100-percent financing makes
some in the industry nervous. “Given what we went through in 2008,
zero-down financing is suicidal for our country,” says Chuck Green, CEO
of Bay Area Captial Funding Inc., a mortgage brokerage that offers loans
from about 40 different companies. “We have to learn from our
mistakes.”
‘Clients For Life’
For
its part, San Francisco Federal Credit Union sees the gamble as
manageable. Four in 10 applicants are rejected and those that have
gotten loans have an average FICO score of 747 and average household
income of $219,000, says Rebecca Reynolds Lytle, chief lending officer.
“We are vetting our borrowers to make sure they can afford it and have
reserves.” But in the end “it’s a loan -- it’s not going to be risk
free.”At Social Finance, the strategy is about getting in on the
ground floor, which it aims to do through its marketing partnerships
with 22 companies and a promise of an answer on a loan application
within a day to help speed up the home-buying process. SoFi also woos
clients with loan officers who fight to help them win bidding wars
against cash buyers.
Wells Fargo & Co., the largest retail
jumbo mortgage lender in the U.S., has been focusing on borrowers in
tech-heavy markets including San Francisco, Boulder, Colorado, and
Austin, Texas, says Brad Blackwell, the bank’s portfolio business
manager. Customers can qualify based on compensation tied to restricted
stock as long as they show that has been a stable source of income.
Lenders
are “targeting a segment that is the highest potential segment in the
country,” says Patrick Carlisle, chief market analyst at Paragon. “They
want these people to be clients for life.”
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