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Some Silicon Valley Tech Workers Get Home Loans with No Money Down

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Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down

#51

Post by jpmattia »

tsunamifury wrote: post #38
jpmattia wrote: post #15

Earlier quoted context omitted.

A nit: You mean non-recourse state , as in "The lender has no recourse to tap your assets in order to fulfill obligations of the mortgage in the event of non-payment." But CA is a bit strange: A mortgage is non-recourse only in defined circumstances, eg when the mortgage is purchase money guaranteed by the property. It used to be that refis turn non-recourse debt into recourse debt. I'd be very surprised if a loan ba…

Restricted shares may not be used to back a loan. They can only be used as a measurement of future income. edit: actually its complicated

For the case where stock is not being pledged: I would be amazed if the lenders were taking on 100% of the risk of default. Usually there's some assumption of asset recovery. That probably means the no-money-down loan is being structured so that there is some additional liability on the part of the borrower. (The mortgage itself would be "nonconforming", so it wouldn't be backed by FNM/FRE.)

Or maybe we're just back to 2006 standards for mortgages and I'm slow to realize it.

Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down

#52

Post by gmarx »

Does anyone else experience mild anxiety reading stories about Bay Area real estate? Long ago I decided it can't be wise to buy instead of rent. Logic and math argue this must end and yet it seems there is always another "sucker". We seem to have entered a new phase in which Chinese are moving money offshore and into the local market. Lots of Chinese, lots of money, could go on and on but for how long? Ultimately a home is only worth what someone can rent it for, right? right? please????

Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down

#54

Post by eitally »

matt_wulfeck wrote: post #19
artursapek wrote: post #8

Why does someone like Zuck need a mortgage? Is it economically advantageous to him in a significant way?

Mortgage interest is tax deductible, which can be quite substantial if you're trying to lower your tax burden. The good news is that AMT comes along and typically eats up deducting property taxes and other things, but the mortgage interest itself still works.

More likely that he was borrowing a great deal and preferred not to be forced into an unplanned stock sale. As the article hints, the odds are good it was a short term loan, which could be one reason for the unnatural rate.

Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down

#55

Post by protomyth »

refurb wrote: post #48
protomyth wrote: post #11

Earlier quoted context omitted.

what is a "no-resource state"?

Typo! I meant non-recourse.

I ended up turning off autocorrect- too many problems

Searching for no-resource state brought up a huge number of programming links - sometime I worry about user customization in search and other UI elements

Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down

#56

Post by CPLX »

ryandrake wrote: post #50

I'm confused. The title says "Silicon Valley Elites" but the article says "tech workers", then goes on to list Mark Zuckerberg and some Apple guy who's salary is apparently 50%(!) stock, as examples. So who are these banks "courting" again? Elites or tech workers? Or just these two guys? It's hard to tell. Interesting news would be "Banks giving kickbacks to CEOs and VCs who throw them corporate business." This artic…

I find it hilarious that the answer to this isn't obvious.

This is 2016. Tech workers are the American elites.

Did you think elites were still guys with a monacle sitting in a drawing room that overlooks a coal mine or something?

Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down

#57

Post by JumpCrisscross »

tsunamifury wrote: post #38
jpmattia wrote: post #15

Earlier quoted context omitted.

A nit: You mean non-recourse state , as in "The lender has no recourse to tap your assets in order to fulfill obligations of the mortgage in the event of non-payment." But CA is a bit strange: A mortgage is non-recourse only in defined circumstances, eg when the mortgage is purchase money guaranteed by the property. It used to be that refis turn non-recourse debt into recourse debt. I'd be very surprised if a loan ba…

Restricted shares may not be used to back a loan. They can only be used as a measurement of future income. edit: actually its complicated

> Restricted shares may not be used to back a loan

This is not true. All manner of restricted stock units (granted to insiders) and unregistered stock (not publicly traded) can be used as collateral for loans (though some issuers make you sign documents promising not to do so). I have been asked to appraise private stock for lenders and render an opinion around its volatility and liquidity.

Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down

#58

Post by aresant »

I'm going to counter the "math" in this thread

Let's take the example of Nick eg:

"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."

Glassdoor check for sr product designer = base of $157,000 to a max of $200,000.

With 7 years figure he's at $180,000.

Figure his wife is in another $100,000 territory as a co-apple employee.

So maybe they're at $280,000.

With a 20% downpayment they can "afford" $1,931,000 of house (2)

Why?

Because interest rates are insanely low.

But problem for nick and others is that lenders want a 20% down payment because that gets skin in the game.

On that $1.931 house that's $386,200 which is damn near impossible to cobble together after dropping crazy SF rents for a decade (or two).

My guess is that the bankers are using significant stock options as a swap or partial collateral for that down payment.

That's a bet I would take eg:

- You've got a guy with a 7 year track record at the most valuable company in the world + his wife there too which is solid income criteria.

- You've got him with real skin in his game - his life savings which just happens to be in apple stock and probably will always be worth more than zero, and likely enough to continue working for even in a downturn.

- Even if the house drops in value when interest rates go up (which is the most common prediction from mortgage bankers I know) Nick needs a place to live by Apple, is invested in his house, and is as likely as anybody to continue paying a mortgage on an asset that technically is worth less than he paid, but because it's tied to a monthly payment he can "afford", will stay on for the long haul.

(1) https://www.glassdoor.com/Salary/Apple-Senior-Product-Design...

(2) https://www.zillow.com/mortgage-calculator/house-affordabili...

Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down

#59

Post by toast0 »

refurb wrote: post #4

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. They don't go into much detail, but this part scares me. I'm assuming the "model" estimates some sort of future value f…

I hope the borrowers are being careful not to pledge their employer stock; that is against most insider trading policies, because it can result in a forced sale during a closed trading window.

Re: Some Silicon Valley Tech Workers Get Home Loans with No Money Down

#60

Post by tsunamifury »

jpmattia wrote: post #51
tsunamifury wrote: post #38

Earlier quoted context omitted.

Restricted shares may not be used to back a loan. They can only be used as a measurement of future income. edit: actually its complicated

For the case where stock is not being pledged: I would be amazed if the lenders were taking on 100% of the risk of default. Usually there's some assumption of asset recovery. That probably means the no-money-down loan is being structured so that there is some additional liability on the part of the borrower. (The mortgage itself would be "nonconforming", so it wouldn't be backed by FNM/FRE.) Or maybe we're just back…

I actually looked into it. You are required to put 4 months of payments in escrow. This is far less than a downpayment, but still shows your ability to pay.
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