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Comment by elgabogringo | Hacker News Reader

How does it make sense to tie up $1M+ at 1%? Are they turning around and selling the note to Fannie or Ginnie Mae? Unless we are Japan (and that's a slight possibility, but not likely IMO) this will be a total loser - not as bad as buying Spanish/French/Italian debt at negative rates, but pretty bad.

Who else has friends going through all sorts of ridiculous acrobatics to buy houses in the bay right now? Where they are "lucky" to get their 10-20% over the list price offer accepted? Yeah, this will end well.

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> How does it make sense to tie up $1M+ at 1%?

Three things likely going on here: loss leading, promotion and a hunt for yield.

Let's start with the hunt for yield. Yesterday's auction priced the 3-year at 0.87% and the 5-year at 1.15% [1]. We don't know the term of Zuckerberg'a mortgage. If it was less than 5 years, the bank might make a spread.

If it's a loan with a longer term the lender could have made more by lending to the U.S. Treasury. In that case, the difference may be booked as a promotional expense. "We're the guys Mark Zuckerberg gets his mortgage from" is succinct and memorable.

Finally, the lender may eat a loss on the loan for the opportunity to do more business with Zuckerberg in the future. One sees this with credit facilities in investment banking: JPMorgan and friends give companies cheap loans in hopes of winning their more-lucrative IPO and debt capital markets business.

[1] https://www.treasury.gov/resource-center/data-chart-center/i...

Also, someone like Mark Zuckerberg has almost 0 default risk. To the banks, this is free money.

Remember, when the bank issues a mortgage for 3.5%, the spread between that and their cost of capital covers the risk of default. But if the default risk is minimal, they can basically issue the loan at cost.

Most banks don't hold mortgage risk. They sell the mortgages to investors who hold the risk.

All good points. I guess it's not Zuck's loan that troubles me the most, but the idea that similar lenders in SF are giving 100% loans and setting up inside tech companies.

It's all about the relationship. If Zuckerberg keeps even a small portion of his wealth at this bank or managed by their advisors, that's a huge win for them as they've increased their capital base available to lend to other customers.

> Are they turning around and selling the note to Fannie or Ginnie Mae?

No, they're well beyond the conforming loan limits, even in "high-cost areas".

https://en.wikipedia.org/wiki/Conforming_loan

As I work through this thread, I'm wondering how the banks are structuring the liability (additional assets of the borrower are exposed?), or whether a new set of bagholders has been found (the taxpayers last time, hopefully not again.)

I'm wondering how the banks are structuring the liability

Yeah, that's what is I was wondering as well. They aren't selling those 1M+ 0% down to GSE's, but maybe somebody on wall street? If not, is it on their books? And yes, what is collateral? Just the property itself?

I have a Silicon Valley loan that is at a rate probably near cost for the lending institution. I did put real money down though.

The big requirement for this loan was for me to move most of my banking to the institution, and to keep a minimum amount of assets with them. I generally like the institution, so the move hasn't been terrible.

So not only are they making interest on the loan, they also have my other business. I'm not super-high wealth (but I do pretty well), but my banking does make them money.

I'd guess the bank is treating this as a similar risk investment as stuff in a money market fund.

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