"Short Everything That Guy Has Touched" - San Fran's Lending Standards Put The Last Housing Bubble To Shame

A perfect storm of low interest rates and a booming tech economy, which has pumped out an endless number of tech millionaires rewarded for amazing ideas like the ability to morph one's face with a squirrel, have culminated in a substantial housing bubble in Silicon Valley and the surrounding areas. 

As recently observed here and here, we think this bubble is just about ready to burst. In fact, an overlay of recent housing prices in San Franciso vs. Las Vegas prices during the last cycle look fairly ominous:

San Fran vs. Vegas


Several weeks ago in a post titled "These 2 Forces Will Crush the San Francisco Housing Bubble," we presented the combination of plateauing employment with an accelerating expansion of housing supply as a nasty combination for home prices in Silicon Valley.  That said, we would like to add 1 more "force" to the list which is a return of extremely aggressive lending practices, painfully similar to the previous housing bubble. 

As noted in a Bloomberg article today, the $0 down, 30-year, adjustable-rate, jumbo mortgage backed by illiquid stock options in tech start-ups, a loan which the San Francisco Federal Credit Union has coined POPPY, or Proud Ownership Purchase Program for You (because "Steaming Pile of Shit" just didn't seem appropriate and messaging really is everything when you're trying to dump loans overseas), has made a huge comeback in Silicon Valley. 

As the San Francisco Federal Credit Union pointed out, it's often not home values that keep people in rentals but rather the inability of potential buyers to come up with a down payment which would be equal to $187,000 on the median home in San Francisco.  So they decided to solve that silly little problem with POPPY.  To our "surprise", POPPY has been a huge success and the credit union is sitting on a backlog of $100 million of pre-approved, 30-year, adjustable-rate mortgages just waiting to be funded.

Not wanting to be outdone by their tech brethren, local banks have become very "innovative" in their race to "disrupt" the old-school approach to mortgage lending that requires things like down payments and rigorous credit checks.  Per Bloomberg:

At Social Finance, the strategy is about getting in on the ground floor, which it aims to do through its marketing partnerships with 22 companies and a promise of an answer on a loan application within a day to help speed up the home-buying process.  SoFi also woos clients with loan officers who fight to help them win bidding wars against cash buyers.


First Republic Bank -- which gave Facebook Inc. billionaire Mark Zuckerberg a 1.05% interest-rate mortgage -- has opened branches in Facebook and Twitter Inc. headquarters.

As Glenn Kelman, CEO of the brokerage Redfin, concluded "It’s a smart bet to cater to a sector that’s created thousands of millionaires and dozens of billionaires." 

Our thoughts are best summarized by Steve Carroll at the very end of the clip below: