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Wednesday, July 27, 2016

New Reason to Despise Tech Money: Mortgage Perks

Posted By on Wed, Jul 27, 2016 at 12:00 PM

click to enlarge MARKMOZ12/FLICKR
  • MarkMoz12/Flickr
It might be harder to swallow than dry, unbuttered $4 toast, but all those tech elites sucking the soul out of San Francisco are such a coveted workforce that banks and lenders are willing to give them big perks when it comes to homeownership.

Folks in the tech industry whose income looks good on paper but not necessarily in liquidity are nevertheless the kind of workers whom Social Finance and San Francisco Federal Credit Union want to do business with. So much so, Bloomberg reports, that the latter is offering these people zero-down mortgages on homes selling for up to $2 million in San Francisco and San Mateo counties. First Republic Bank has even gone so far as to open branches inside the headquarters of Facebook and Twitter, while Social Finance — or the annoying shorthand SoFi — is allowed to court new hires at Google and other tech giants.

This is certainly going to piss off a lot of people, especially those who were priced out of San Francisco in recent years or who spend half their income on rent or mortgage payments. However, it really should come as no surprise that financial institutions want their customers to be wealthy (which lowers risk) and that tech has created a lot of new wealth in the Bay Area.

But a lot of that wealth is tied up in company shares, which means many people simply don’t have the $100,000 to $200,000 necessary for a down payment in a city where the median home price is more than $1 million, by far the highest in the country.

Tough shit, you might be saying. It’s tech’s fault things got this way to begin with. Well, life doesn’t work that way, especially when the housing market is ebbing and venture capital money is drying up. As Bloomberg pointed out, VC money dropped 20 percent in the second quarter of 2016 compared to the year before. And Paragon Real Estate reports that the median condo price in San Francisco went up less than 1 percent in that same time frame, far lower than the 18 percent gain a year ago. But here are perhaps the most important figures: The number of condos listed for $2 million or higher increased 44 percent while sales dropped 30 percent.

We’re living in a glut of expensive real estate. Some might say that’s reason enough to not offer these kinds of perks, except the homes are still there ready to be sold and banks still want to make money hand over fist.

“Lenders get so caught up trying to stay competitive and finding a market edge, they basically allow greed to overcome common sense,” Terry Wakefield, a mortgage consultant and online lending pioneer, told Bloomberg. “Easy money does fuel and accelerate the inevitable bubble.”

Of course, San Francisco Federal Credit Union knows what it’s doing, or at least says it does. It only accepts 60 percent of applicants, who must also have great credit scores. Others have similar approaches, which just means there are enough clients to go around.

Glenn Kelman, CEO of brokerage firm Redfin, put it best when he said the area is becoming “a no-fly zone for anyone outside technology,” especially when considering the credit standards imposed after the Great Recession, when we were made to believe that interest-free loans were the straw that broke the camel’s back. These perks “might be good for the borrower and good for the lender,” Kelman said, “but it’s not necessarily good for San Francisco.”
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Max DeNike


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