SAN JOSE, Calif. — How incredible is the housing market in and around the fabled Silicon Valley, the Northern California home of innumerable tech companies?
Look no further than this statement from Dan Hapner, director of mortgage sales for $1 million Meriwest Credit Union, which might seem very strange to homeowners in most parts of the country who are underwater on their mortgages: "There is a lot of equity here, so we are still seeing refinances."
"The aspect that makes this area so unique is the job strength," Hapner explained. "If a couple is well educated and both have high-tech jobs, you can see $250,000 or more in annual income. Housing has extremely low inventory. We will see 100 families come through an open house we are co-hosting.
"The situation is not fun for buyers," he added.
Steve Donahue, VP of mortgage origination for $1.8 million Technology CU, also headquartered in San Jose, said the San Francisco Bay Area is "unique" geographically and in other ways.
"Some of the brightest minds in the world live here, they are highly compensated, they work hard and play hard," he said. "In addition to strong job growth, we do not have land to expand, which is keeping inventory low."
Kevin Collins, SVP of loan services for $6.7 million Star One Credit Union, Sunnyvale, Calif., said the Silicon Valley has seen a "dramatic recovery" in recent years from what turned out to be a very short housing downturn.
"We have had some companies go public, which put a lot of cash into Santa Clara County," he said. "The real estate market has been really hot, with multiple bids on properties."
Patelco Credit Union, which for years was based in San Francisco before moving across the Bay to Pleasanton, Calif., said its year-over-year real estate portfolio growth as of March was 22.49%. Vince Salinas, VP of home loans for the $4.1 billion CU, said its footprint is the Bay Area and Sacramento, but it writes mortgages anywhere in California.
"It is a rich market," said Salinas. "Housing can be very expensive if people want to be close to their job. Some people are house poor to have a shorter commute,but others commute long distances."
Geography limits opportunities for new construction, Salinas noted. To the north of San Francisco, across the Golden Gate Bridge, is historically expensive Marin County. The peninsula that contains the Silicon Valley is extremely crowded, and areas to south are getting expensive, leaving only some room to build to the east.
Jumbos Rule
"To be a player in the Bay Area home lending market you have to have a strong focus on the jumbo market," said Patelco's Salinas. "The loans are big. We made that conscious choice starting last summer. We could see the refinance market was slowing down and wanted to replace volume in 2014. We looked at our programs, negotiated variances with mortgage insurance companies for lower down payment borrowers — those who did not have 20% cash to put down."
Hapner of Meriwest reported most sellers are requiring buyers to remove most contingencies from their offers, including loan contingencies, inspections and appraisals. He said any savvy seller is doing inspections before they list their home so they already have the termite and septic reports in hand.
"Some sellers allow a few days to get lending in order, but others expect buyers to be pre-approved, including tax returns," he said. "It is very common we are pushed to close in 15 days or less. We do that all the time, and it is one way we are able to get market share. A lot of the big banks have centralized locations so it is harder for them, but we succeed because we are local."
Another distinguishing feature of this white hot market is sellers want to avoid appraisals because so many properties end up in bidding wars. Hapner said buyers need to be able to put 30% down to be taken seriously, because selling prices are higher than the appraised values.
"If a $1 million house gets pushed to $1.2 million, the lender will only lend 80% of the appraised $1 million value — so the buyer needs to come up with the other $200,000. We see these scenarios every week."
Star One CU's Collins said it sees a number of "big loans" because property values are so high.
"We are a portfolio lender, in part because of the $417,000 limit, plus other limits from Fannie and Freddie do not make sense for us."
The playing field is "pretty even" because "everyone has vanilla products," Collins said.
"The Ability to Repay law is not new to us, we have always done that," he said. "We never did option ARMs. When the crisis first hit we had a lot of growth because competitors left, but now lenders have come back and the market is very competitive. Even though we already were doing what the CFPB wanted, it now takes a lot of time and effort to document everything."
Debra Bowman, SVP of retail banking for Technology CU, said it competes with personalized and customized products and services.
"Our team is knowledgeable and experienced, and educates buyers about the Silicon Valley real estate market," she said. "We deliver quick approvals, and once we have a completed package we guarantee the loan will close in 10 business days."
Technology CU has standard mortgage products, plus it has a 5/5 adjustable that adjusts every five years, Bowman continued. It has super jumbo loans up to $3 million fixed and up to $8 million adjustable.
"We do all decisioning and funding locally, which helps turnaround times," said Bowman.
Counseling Needed
All of the CUs said they offer seminars for first-time home buyers, plus other educational opportunities. And they have programs in place to help employees deal with the scarcity of affordable housing options.
Given the fact technology companies are moving people to the area from other countries, sometimes specialized counseling is needed.
Technology CU's Bowman said: "we offer all services to everyone, including employees. We want to help applicants with their unique situations. When working with the local tech community, our mortgage consultants are experienced in helping new residents getting established. Many people are moving here from overseas and they face special challenges."
Star One CU has an employee discount rate program for both mortgages and autos, reported Collins.
"Sunnyvale is very expensive, so a lot of people commute."
Competition In Other Places
There was some mild disagreement as to whether CUs regard other CUs as competition. While some pointed out the many community credit unions in the area might occasionally be pursuing the same consumer for the same home or auto loan, they quickly added the CUs here support each other. Most regarded banks and direct lenders as their "real" competitors.
Patelco's Salinas said bluntly, "Other credit unions are not the competition. The top four lenders have 30% market share, we have 1% market share. If we double that, we probably would take that from the big lenders."
There is a trend of the big lenders losing share in recent years to lenders that have ties with realty firms, Salinas continued.
"We are going to remain strong in the jumbo space, and we are becoming known as a place to finance home purchases. We are working with HomeAdvantage, a network of Realtors and realty firms that can help our members understand the process of buying a home. Our challenge is to keep up with the ever-changing regulatory landscape. We will have to invest more in servicing, in people and systems. We have hired knowledgeable, expert underwriters to evaluate high-net-worth borrowers. With big loans usually comes more financially savvy borrowers."
