As if highly paid Amazon employees needed another helping hand, some lenders are making it easier for the company’s new tech hires to qualify for home loans.
Some mortgage originators now agree to consider Amazon employees’ potential future earnings from restricted stock units — which can make up the majority of their compensation package — as income for the purposes of qualifying for home loans.
That’s a big change from former practice. Historically, lenders haven’t counted the sale of restricted stock units as income when they’re determining whether buyers qualify for home loans, because a dip in stock values could take a big bite out of the units’ value and thus limit future income.
The lending product, which remains largely under the radar, means new Amazon employees can qualify for larger mortgages to buy more expensive homes.
But Amazon’s unconventional compensation structure can pose problems for new hires who want to buy homes.
The company caps all corporate base salaries at $160,000, no matter employees’ level or responsibility. Additional compensation is generally in the form of restricted stock units, which typically vest in chunks over four years.
Every year, employees are able to liquidate a set percentage of those units — which is why restricted stock units are sometimes called “golden handcuffs,” for the way they keep new employees tied to a company.
If a home lender is only willing to consider that $160,000 base salary as qualifying income, that could make a new Amazonian without a documented history of additional earnings ineligible for the loans necessary to afford much of the area’s prime real estate.
Take a $1 million two-bedroom condo at Spire, the luxury 41-story development mere blocks away from Amazon’s dense South Lake Union buildup.
As a rule of thumb, with a 10% down payment, a buyer would need to earn something in the neighborhood of $200,000 to qualify for a 30-year mortgage on that home, said Diana Bowar, a loan officer at 1st Security Bank, which last summer rolled out a restricted stock unit lending program for new Amazon employees.
“There’s a need in our backyard,” Bowar said. “And we’ve seen that people who are getting RSU income and have contracts with Amazon, the likelihood that they’re going to stay in that job making that kind of income is good.”
Spire’s preferred lender, Caliber Home Loans, also offers a similar restricted stock unit lending program — but it’s one of the few national lenders that does, said local loan officer Luke Easterly.
“Given this source of income is not common nationally, it’s not surprising that it has taken longer for investors/agencies to become comfortable with allowing RSUs as a source of income,” Easterly said.
But some other local mortgage originators also have started to offer lending programs targeted to Amazon employees, including Bellevue-based Evergreen Home Loans and Veterans Lending in Puyallup.
Restricted stock unit lending programs make the most sense for Amazon’s new hires, particularly those who have transferred from other tech companies where they were compensated in cash or stock options, said Don Zender, Evergreen’s Bellevue branch manager.
Lenders typically need to see a two-year average of bonus income, including earnings from restricted stock units, before they’ll count those earnings as part of income.
“But if you start at Amazon, you can’t do that,” Zender said. “The biggest hurdle has always been the first couple years.”
Evergreen’s Amazon-specific product will take Amazon’s compensation package in the offer letter as a guarantee of future earnings, allowing new employees to qualify for larger loans — typically above $700,000.
Spire, where condos run from under $600,000 into the $5 million territory, has been fielding plenty of queries from Amazon employees who want to use their restricted stock unit income to qualify for pre-sales, said Paul Menzies, the CEO of Laconia, the developer behind the project.
Financial advisers anticipate restricted stock unit lending programs will gain popularity as Amazon continues its hiring spree. The company has well over 45,000 employees in the Seattle area alone, the company disclosed last year, and has added an average of around 5,000 local hires a year over the past decade.
“Some lenders are starting to say, well, RSUs are not really a one-time thing,” said Steve Geri, a financial adviser at Denny Park Investments in South Lake Union. “They’re a continuing form of compensation in many industries.”
While other tech companies, including Microsoft, Facebook and Google, also compensate their employees with restricted stock units, Amazon’s base salary cap means its employees are the primary target of restricted stock unit lending programs.
“If your base salary is enough to qualify for the home you want, you don’t need to jump through all these hoops,” said Phuc Dang, a financial planner at Merriman. “But Amazon’s highly paid folks qualify for more home than their base salary would support. These banks want to give them bigger homes, if they can afford that.”
In the past, housing sellers have sought to attract tech workers by offering deals like 100% mortgages. And in Seattle, tech-sector workers also have been able to rake in freebies from landlords, like lower fees and deposits, though the city put limits on such preferential deals in 2016.
Some affordablity advocates worry about how restricted stock unit lending programs could affect Amazon’s already-outsize presence in the Seattle housing market.
“Since stock makes up a larger share of compensation as you become more senior at tech companies, I understand why lenders would consider stock when making loans,” said Calvin Jones, an organizer for the affordability advocacy group Tech4Housing. “I just wish lenders worked just as hard to find ways to help lower-income people get access to the housing market.”
Upcoming payouts from Amazon’s restricted stock units could cause a major influx of cash into the Seattle housing market. Companywide, Amazon has 16.2 million restricted stock units outstanding as of June 30, with a value of close to $1.3 billion, according to SEC filings.
“These are top-tier borrowers,” said Mark Villano, a loan officer at Veterans Lending. “It makes sense to make customized products for them, to support them.”