By Scott Kanowsky
Investing.com -- Amazon.com, Inc. (NASDAQ:AMZN) employees will soon be able to use stock they own in the tech giant as collateral when securing a home loan with online mortgage lender Better.com, according to a report in the Wall Street Journal on Tuesday.
Citing statements from both companies, the paper said the workers will be allowed to use a new Better.com product called Equity Unlocker to put up shares for loans for down payments on a home, instead of selling their holdings to raise funds.
In a bid to bolster its defenses against a drop in Amazon's share price, Better.com told the WSJ that it will charge a higher interest rate on mortgages taken out by Amazon employees pledging stock. It added that the borrowing cost will be between 0.25 to 2.5 percentage points above the normal market rate depending on the structure of the down payment.
The arrangement differs from that of other securities-backed loans, which can include the risk of margin calls, or requirements that borrowers deliver more collateral or sell assets to cover debt obligations. These loans, often reserved for so-called high-net-worth individuals with valuable portfolios of stocks and bonds, can prove to be risky should the price of the underlying assets drop.
However, Better.com chief executive Vishal Garg also told the WSJ in an interview that the Amazon employees' stock-backed loan deals would be protected against a decrease in the price of Amazon shares.
The WSJ said Amazon workers will be allowed to hold on to their stock to wait for a rebound in the price, but still participate in buying a home. The report added that spokespeople statements and training documents showed that Amazon is advising workers to "think like owners" and keep the shares in their possession for longer in order to benefit from an expected price recovery.
Amazon has typically used shares as a key piece of its employee compensation packages, with stocks making up over half of the salary for some top-level workers. However, as Amazon's stock price fell last year during a widespread decline in tech shares, the group raised the cap for the total cash portion of its salaries to $350,000 from $160,000.
Shares in Amazon have shed nearly four-tenths of their value over the past one-year period.