Silicon Valley Elites Get Home Loans With No Money Down

[HardOCP News]

According to this Bloomberg article, banks in the Silicon Valley are using 0% down-payment tailored loans to attract tech workers into buying homes. Some banks have even went as far as putting branches the headquarters of Facebook and Twitter.

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.

 

[Deleted member 245375]

Can you say "housing bubble..."? I knew that you could.

I'd quote the common popular definition of insanity but, in the process of doing so I'd simply be doing the same thing over and over again without any actual change happening. See how that works?

 

[sfsuphysics]

It turns out that even the well-off need help in a housing market

Now they don't, it's simply banks, pardon the pun, banking on a sure thing. Let's be clear about this, your average contractor tech worker at Google is not getting these 0% down offers, these are people who have some level of compensation above and beyond the median tech worker. These are people who are financially well off, so making payments are not an issue, and if they are, they foreclose, the bank now owns a house which is probably more than the original cost, and given the clientele in question they most likely aren't going to fuck up the house, so they turn around and sell it at a profit.

It simply is smart business to give loans to rich people when there's collateral that's worth it's weight.

I do find it funny that Zuckerberg took a loan for his house, I mean I'm sure there's some sort of silly tax loophole for it, like at his income level he's taxed at 33% but then he gets to write off mortgage payments which only cost him 1%

 

[Chaos Machine]

Now they don't, it's simply banks, pardon the pun, banking on a sure thing. Let's be clear about this, your average contractor tech worker at Google is not getting these 0% down offers, these are people who have some level of compensation above and beyond the median tech worker. These are people who are financially well off, so making payments are not an issue, and if they are, they foreclose, the bank now owns a house which is probably more than the original cost, and given the clientele in question they most likely aren't going to fuck up the house, so they turn around and sell it at a profit.

It simply is smart business to give loans to rich people when there's collateral that's worth it's weight.

I do find it funny that Zuckerberg took a loan for his house, I mean I'm sure there's some sort of silly tax loophole for it, like at his income level he's taxed at 33% but then he gets to write off mortgage payments which only cost him 1%

I thought you could only write off mortgage payments if you made below a certain amount annually. It could be more of a cash flow issue with him or maybe he doesn't want to cash out stock and pay capital gains to pay for the house.

 

[Deleted member 245375]

I do find it funny that Zuckerberg took a loan for his house

He ended up buying basically the entire area surrounding his house (meaning the 4 properties around the one he lives in) as well in the sake of "privacy" which has got to be one of the most ironic twists of fate ever, that's Titanic-level irony.

 

[amddragonpc]

When these banks check that the people working for FB and Twitter have net worth in the millions, banks see low risk easy money.

 

[ianken]

When these banks check that the people working for FB and Twitter have net worth in the millions, banks see low risk easy money.

Yeah, but they market to new hires. And, LOL, they ain't worth millions.

You have tens of thousands of people making six figures, a significant chunk of those getting millions in incentives coupled with municipalities that hamper growth like Mountain View does and this was bound to happen. Silicon Valley is a soulless gilded shithole as a result.

 

[Wrecked Em]

My guess is that these loans are an attempt to get people to move the rest of their money over to be managed by the bank.

 

[Quix]

My guess is that these loans are an attempt to get people to move the rest of their money over to be managed by the bank.

Or maybe they think they'll get some sweet foreclosure dough out of it.

 

[thesmokingman]

So... zero down loans are ok for rich people?

 

[krotch]

So... zero down loans are ok for rich people?

Why not? The point of the down payment is for the banks to recoup something if the person taking the loan isn't able to maintain payments. It's essentially a collateral payment. Of course the house is also collateral, but not all banks want to be stuck with a house that may or may not be worth what the loan is.

But, as someone who is rich, it's stupid not to make a large down payment, unless the money they would have used as a down payment can generate more money than the interest on the loan. Then not much sense using it for a down payment.

 

[haste.]

But, as someone who is rich, it's stupid not to make a large down payment, unless the money they would have used as a down payment can generate more money than the interest on the loan. Then not much sense using it for a down payment.

What they are doing is basically arbitrage since mortgage rates are so low. They are getting better returns in the investment market than the amount they are paying in interest on the mortgages. It would be foolish to have a large cash outlay even if the spread between loan and investment is only 50-100bp (.50-1% apr).

 

[pothb]

He ended up buying basically the entire area surrounding his house (meaning the 4 properties around the one he lives in) as well in the sake of "privacy" which has got to be one of the most ironic twists of fate ever, that's Titanic-level irony.

Ironic, not at all. Hypocritical on the other hand..... definitely. The guy who urges people to share their entire lives knows how bad that is because he's one of the people who takes advantage of it. So he wouldn't do it himself.

 

[phawkins633]

VA loans are zero down and always have been.....I know that doing a couple of years in the Military is totally foreign to y'all, but I guess i get the same perks as the rich assholes/garbage in the Bay Area....LOL

 

[Seventyfive]

As a Chartered Financial Analyst who has worked in the financial markets for over a decade, I will explain banking to you in one sentence:

Since you don't need the money, we would be very happy to lend you money.

The more money or income you have, the easier it is to get a loan and the better the terms are. The less money or income you have, the worse the terms will be. Think about it from a logical standpoint at the 2 extremes of the spectrum. If you lend money to 2 different people, what are the chances Mark Zuckerberg pays you back and what are the chances the hobo living in under the freeway pays you back?

 

[Jagger100]

We've put a bubble back in housing all over. SV has its own thing, but rest of the country is no better. Liar loans whose collapse collapsed the credit market in 2008 are pretty getting back to 2008 levels.

 

[Jarod888]

Borrowing money at stupid low interest rates vrs using that money to make money is a no brainier. It is actually cheaper for them to use the banks money than it is for them to use theirs. Also there are probably restrictions, like you have to maintain a certain dollar limit relationship with the bank via deposits, investments, etc. The bank makes up the "lost" revenue of low cost loans by using the deposited money to loan to others who pay interest on it when they borrow money, thus making the bank more money.

 

[thesmokingman]

Why not? The point of the down payment is for the banks to recoup something if the person taking the loan isn't able to maintain payments. It's essentially a collateral payment. Of course the house is also collateral, but not all banks want to be stuck with a house that may or may not be worth what the loan is.

But, as someone who is rich, it's stupid not to make a large down payment, unless the money they would have used as a down payment can generate more money than the interest on the loan. Then not much sense using it for a down payment.

Just seems like heading back to where the boooom started all over again.

 

[MaddBomber83]

Why is this news? People have been getting 0% down on houses for a while now. Raise your hand if you are a disabled vet; I've bought 2 (primary) homes with my VA benefits. There are other places you can go to get 0 down (at a horrible rate).

 

[Deleted member 245375]

As a Chartered Financial Analyst who has worked in the financial markets for over a decade, I will explain banking to you in one sentence:

Since you don't need the money, we would be very happy to lend you money.

The more money or income you have, the easier it is to get a loan and the better the terms are. The less money or income you have, the worse the terms will be. Think about it from a logical standpoint at the 2 extremes of the spectrum. If you lend money to 2 different people, what are the chances Mark Zuckerberg pays you back and what are the chances the hobo living in under the freeway pays you back?

The truth of this is funny, here's a short story to illustrate it to some degrees. For some people, opening a checking account at a local bank can sometimes come with perks, like no fees or even the classic "Open an account with us and get a free toaster!" Years ago I worked with a guy who, along with his partner, had saved money working for a company for nearly 20 years. They invested wisely, built up a nice portfolio during that time, bought stocks and invested in just the right mutual funds at the right times, and so on. After 18 years they had like $2.5 million in cash reserves (like I said, they invested wisely) and decided they wanted a yacht, not only to sail around on during their 2 week annual vacation period, but also one they could lease out from time to time to earn back some of the money they were willing to sink into it, pay for upkeep, a small crew to take care of it and run it, that sort of thing.

Anyway, he contacted a broker in southern Florida at one point, got some info online about the yacht itself from their brokerage info page, picked one with a price tag in the $775,000 range, set up a visit and took a few days off from work to fly down to check out the yacht. When he got there the guy working for the brokerage hadn't done his research at all, hadn't checked into this friend's background (financial or otherwise) and treated him like basically anyone else not realizing that he could literally just buy the yacht with cash if he and his partner so desired. The friend checks out the yacht, finds it in acceptable condition, makes the offer, the brokerage guy smirks (according to what my friend relayed back to me), took his info, had him fill out the necessary forms (they were going to finance the yacht instead of the cash lump payment for it outright. He left, came back to the place we were working, got a phone call the very next day from the brokerage guy and what a difference in that guy's attitude:

He went from just being "Sure, you want to buy a yacht, tell me something I don't know..." attitude to "Hello Mr. (the friend's name), it was fantastic meeting you, bleh blah bleh blah..." - in other words, once the brokerage guy had done the necessary research and discovered not only who this friend of mine was - he's part of a family that has a very large part of controlling interest in a major American car manufacturer so he was technically already wealthy to a given degree outside of his stock portfolio - the attitude did a complete 180 from thinking he's a nobody to utterly sucking up so intensely my friend could practically feel his zipper being dropped over the phone.

Anyway, the guy was calling to say he'd be sending a few forms overnight and they'd be happy to conclude business on the purchase within 48 hours if my friend would just fax the necessary filled out forms back, or overnight them at the brokerage's expense (of course). So he gets the forms, and there's a letter included - this is the funny part to me that illustrates it all.

The letter was of course company letterhead, professionally done and basically said something like this:

"Dear Mr. (insert friend name here):

We were so happy to have you visit and inspect the (insert yacht name/model here) and we're pleased to tell you that you've been approved for the purchase based on (insert terms of purchase here, a paragraph or two). As a special incentive, and because you're one of our favorite clients <seriously, they had this in the letter, go figure> we're pleased to make you this special offer:

If you return the signed and dated application by (a given date and time) not only will you get the (insert yacht name/model here) but you'll also receive a Mercedes Benz (insert model here along with the model year) at no additional expense!

<the rest of the letter>
Thank you for being a great client!
(brokerage name, agent, number, etc)

He applied for a loan, got approved, and as long as he returned the signed/dated forms necessary they were going to give him a $57,000 Mercedes Benz (that was the retail value around 2001-ish when this event occurred). I mean, that's a pretty nice toaster, wouldn't you say?

They (meaning the friend and his partner) got a good laugh about it, so did I when he showed me the actual letter, and they did take them up on the offer - the Mercedes was delivered a week later, very nice car. To the best of my knowledge they're still working at the same company, still investing, had a blast on their first sailing expedition later that summer and probably still own that car who knows, might have to check in with 'em sometime and see how things are going.

So yeah, the ones with the money do have it somewhat easier - I won't say being rich and wealthy is a total cake walk but, as I learned many years ago myself "Money can't buy happiness, but it can damned sure make being miserable a lot more comfortable."

 

[Jeremy C]

This is a little misleading. I wouldn't be surprised that there's a catch much like at my bank. "Bring this amount of money to us in liquid assets and we'll lower your rate by this much." I've done loans for some seriously rich people all across CA, and never saw a rate go below 2.5% (and that required over $1MM in liquid assets).

 

[sfsuphysics]

I thought you could only write off mortgage payments if you made below a certain amount annually. It could be more of a cash flow issue with him or maybe he doesn't want to cash out stock and pay capital gains to pay for the house.

Or if he's making 5% on his money through whatever investments he's doing, then you're actually paying less if you get a loan at 1%

Although I dunno, at his level of wealth there has to be a point of "yeah but I have enough money and zero risk vs. a minuscule amount of risk is enough for me"

 

[krotch]

Just seems like heading back to where the boooom started all over again.

Ya, that's how I feel too.

The truth of this is funny, here's a short story to illustrate it to some degrees. For some people, opening a checking account at a local bank can sometimes come with perks, like no fees or even the classic "Open an account with us and get a free toaster!" Years ago I worked with a guy who, along with his partner, had saved money working for a company for nearly 20 years. They invested wisely, built up a nice portfolio during that time, bought stocks and invested in just the right mutual funds at the right times, and so on. After 18 years they had like $2.5 million in cash reserves (like I said, they invested wisely) and decided they wanted a yacht, not only to sail around on during their 2 week annual vacation period, but also one they could lease out from time to time to earn back some of the money they were willing to sink into it, pay for upkeep, a small crew to take care of it and run it, that sort of thing.

I had a similar experience when I went into a Subaru dealership. I dress in whatever I feel like. Which tends to be cargo pants, t-shirt, skater style shoes, and a colored G-shock. I wear glasses and spike my hair up a bit. Anyways, I walk into the dealership to get some parts for my car and was looking at the 2015 WRX STI. Not to buy, just looking at it. Why not? I'm waiting on the parts guy to get me my things anyways.

One of the dealers was being a douche. He's like," Nice car, but it's probably out of your price range." I just thought to myself," Really dude? You're suppose to suck up to the customer to try and get a sale." The others were pretty friendly. Going on and on about the specs of the car and also commenting on my car outside (Impreza Coupe). So I decided to waste his time and I was on vacation in a small town in Idaho where there isn't a whole lot to do. So I got him to do the run around, draft up papers and shit. Get him to suck up to me after I show him that I make near $100k a year. Then I didn't buy it, cause well...I didn't want it to begin with. All while the other dealers were with other customers getting their sales. Sure it's immature of me to do, but I'm a vengeful bitch.

Hopefully that specific dealer learns not to judge by appearance. Not everyone feels the need to dress to impress. Half the time, I see those that do, don't have the cash to support it. Everyone judges by first impression, but when your job is to sell something to them, you better keep that shit to yourself until you find out the whole picture.