Short answer: Almost certainly not.
The Wall Street Journal was out with a piece this morning, which describes a new product from mortgage lender Better.com that will allow Amazon employees to use their personal holdings of Amazon shares/RSUs as collateral for home purchases.
If you’re an Amazon employee, should you consider kicking the tires on this new product if you are looking to buy a home?
It’s pretty simple: I really don’t think you should do that.
Despite the stock being down. Despite this crazy housing market. Despite interest rates skyrocketing.
Let’s take a look at some of the reasons to not to use your Amazon stock or RSUs as collateral for a mortgage:
- Enables (ongoing?) poor risk management. If you work at Amazon, you quite simply should minimize your exposure to the stock, not be looking for excuses to hang onto your shares. Working at Amazon and owning a significant amount of shares amplifies your risk (see: 2022/2023).
- You will pay more than you otherwise would if you made a down payment with cash, like (almost) everyone else does. As stated in the article, the mortgage rate will be “between 0.25 and 2.5 percentage points above the market rate.” OK, so you’ll pay more to reinforce poor diversification.
- It fails my #1 personal finance rule: It’s not simple. You should be relentlessly looking for ways to simplify your financial life, not make it more complicated. Perhaps you get a regular mortgage? *ducks*
- It’s a mega behavioral bias exploiter. See the endowment effect (valuing something more just because you own it), the sunk cost fallacy (holding on to shares because selling could be admitting you were wrong) or confirmation bias (since this new product exists, it may confirm your [sorry to say] desire to hold too much stock).
Here’s why you should consider using your stock as collateral for a mortgage:
- You’re very wealthy, your AMZN shares are mostly unvested, are a small percentage of your net worth, you’re looking to buy a multi-million-dollar home, you can’t manage to save money up for a traditional down payment and for some reason the rest of your assets are completely illiquid. If this describes you, by all means kick those Better.com tires!
If allowed to speculate, and I will (because this is my microphone), I’d say the marketing team at Better.com has this line of thinking:
“This housing market is terrible! We need to sell more mortgages.”
“Let’s think of niche strategies to target certain groups of individuals. I know, Amazon.com is the 2nd largest private employer in the country!”
“Hold on, it looks like they’re paid with a lot of stock, and the stock has been crushed. How can we leverage the fact that they might be trying to hold on to get back to even?”
“A custom, collateralizaed mortgage product!”
Alright, that’s the end of the heavy sarcasm. But I’m willing to bet that more or less this is what happened over at Better.com.
It’s a bit concerning that Amazon has signed off on the program to some degree by releasing a statement about it, and even going far as stating that it “aligns with Amazon’s benefits program that seeks to care for the financial wellness, mental wellness and physical wellness of its employees.”
I’d argue that playing off of several behavioral biases as a strategy to convince employees to further hold on to company equity is not exactly promoting “wellness,” but to each their own.
Amazon employees, you can skip this one.