What to do if you've just signed up to work in one of the most expensive real-estate markets in the world, with almost all of your net worth tied up in illiquid shares in your employer's company? Just ask a Silicon Valley bank for a 100% mortgage, which they'll cheerfully supply on 24 hours' notice, with all the "white-glove service" trappings you could ask for.
As solutions to difficult problems go, it's a sterling example of how something can benefit a company and its employees and impose costs on the rest of us — and them, in the long term. House prices in Silicon Valley are driven in part by speculation and also by easy credit; letting new tech hires buy multimillion dollar homes literally for free just pushes house prices up — and that pressure on pricing tumbles down (the people who might have bid on a $1M house are priced out when it pushes to $1.2M; they go bid on former $800K houses and take them up to $1M; the $800K customers, priced out, go and bid up the $500K houses, etc).
So on the one hand, it's going to put more people in housing poverty, all the way to the bottom of the market. On the other hand, it's going to make it harder for the region — city and state governments — to make decisions that could prick the housing bubble, because the more inflated things are, the worse the explosion will be for everyone in the region.
The startup kids getting these 100% mortgages are themselves high-risk borrowers — notwithstanding that the banks are making a bet that enough of them will win the Silicon Valley lotto to pay for the ones who go to work for companies that tank, this being nearly all of the companies. They will end up sitting on more house than they can afford, and also push house prices up for future new hires at companies that do succeed. Which is setting up for another crash, another foreclosure epidemic, and more dysfunctional housing.
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.
Silicon Valley Elites Get Home Loans With No Money Down [Heather Perlberg and Prashant Gopal/Bloomberg]
(Image: Westminster House, Sanfranman59, CC-BY-SA)
