While this might sound a little hard to believe, it has been reported that former Federal Reserve chairman Ben Bernanke was unable to refinance his mortgage. Yup, he got straight up denied.
You might be thinking, yeah right, why would a lender deny such a high profile individual who you’d think would be good for the money?
After all, he did direct the monetary policy for the entire United States, so the prospects of him paying the mortgage on time are pretty darn high.
But it’s true! He apparently shared the unfortunate news with Moody’s economist Mark Zandi at the National Investment Center for Seniors Housing & Care Conference in Chicago.
When speaking of his attempt to refinance the mortgage, Bernanke said he was “unsuccessful in doing so,” at which point the audience burst into laughter.
No Laughing Matter, Seriously
The crowd was probably pretty surprised when Bernanke followed with, “I’m not making that up.”
He then went on to add that lenders may have gotten a little too conservative with their mortgage underwriting as of late, and that the tightening had become “excessive.”
Additionally, he noted that regulators, presumably the CFPB, haven’t seemed to get the housing market right.
Perhaps they’ve made it too difficult for certain borrowers to get mortgages thanks to the new Qualified Mortgage rule, which among other things, doesn’t allow DTI ratios above 43%.
So I got thinking why Bernanke would be denied a refinance, and then a light bulb went off in my head.
He just resigned from his job as chairman of the Federal Reserve after two successive terms spanning eight years.
Perhaps lenders are well aware of this and not interested in extending a loan to someone who is either retired or short on income.
Sure, he might have plenty of money in the bank, but if the bank can’t determine his ability to repay the loan, he might have to go with a non-QM loan instead.
And Bernanke probably thinks that’s preposterous, seeing that he’s the former Fed Reserve chairman.
It Seems a Little Fishy…
While it does sound really silly, he might have a point about the new mortgage rules, and their unintended consequences.
At the same time, I can’t see why a large bank wouldn’t offer Bernanke amazing terms on a mortgage and simply keep it on their books. He’s not much of a credit risk, so there’s no reason to sell the loan on the secondary market.
Maybe it’s just a stunt orchestrated by Ben to get regulators to take another look at the harsh new guidelines now in place. Or somebody at the bank made a huge mistake…
By the way, he’s currently a Distinguished Fellow in Residence at The Brookings Institution, which may or may not be an adequate job title as far as an underwriter is concerned. Hmm.
For the record, Bernanke refinanced his home mortgage at least twice in the past several years, with the most recent mortgage choice a 30-year fixed on his D.C.-area three-bedroom residence.
It’s unclear what he was up to this time around, but I doubt he was attempting to get the interest rate on his 30-year mortgage any lower.
Maybe he decided to roll the dice and go with a short-term ARM in order to save money and invest elsewhere. Or perhaps he needs to tap some equity.
Who knows? Either way, I’m sure someone will offer him a pretty sweet refinance sooner rather than later.
(photo: Medill DC)
I’m sure the Bernanke knows why he couldn’t refinance, but many home owners don’t understand why a lender would not cooperate with refinancing, when the outcome is default by the borrower. I have the answer. It is in their best interest, as default is the most profitable due to the creation of derivitives in the mid 1990s, and the repeal of the Glass-Steagall Act of 1933 in 1998.
A derivative (also known as Credit Default Swaps, this is what Hedge Funds manage) is an insurance policy on an asset portfolio, like mortgages, that insures the asset for the full value of the asset at the time the loan was originated. The financial industry has made year over year record profits because they invested in the derivatives, and then either sold the Mortgage Backed Securities on Wall Street or Leveraged (borrowed) against them at the Federal Reserve. When created, the Federal Reserve investigated derivatives and found them to be a huge potential threat to our economy, but the financial industry successfully lobbied the Fed (Greenspan & Bernanke) and Congress to keep them unregulated. The next move for the financial industry was to successfully lobby the Congress & Executive Branch (Presidential Economic Advisor Larry Summers & Clinton) in 1998 to get the repeal of the Glass-Steagall Act of 1933. The critical protection for homeowners in Glass-Steagall was that Commercial banks were prohibited from putting their assets on Wall Street with Investment banks. Commercial banks played the crucial role in the current Great Recession, as buyers and sellers of mortgage-backed securities, credit-default swaps and other explosive financial derivatives. The Glass-Steagall Act of 1933 was created to protect American citizens from the Wall Street activity that created the 1929 crash and subsequent Great Depression. Without the repeal of Glass-Steagall, the banks would have been barred from most of these activities. Despite the minor reforms of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2012, as of 2014, there has been no regulation of Derivatives or reinstatement of the protection measures that were in the Glass-Steagall Act. Also, this is why some homeowners can not get investor cooperation to short sell their homes. My advice to home owners, BEFORE trying to refinance or do a short sale, is to ask their loan servicers ( who are not usually the investor) if the loans are insured on the back end. As party to the contract (note) they legally can not be denied this information by a loan servicer or investor. If the answer is yes, on any note on the property (btw, this applies to unsecured assets like credit cards too) that investor will not agree to anything that impacts their derivative profits. Sadly, what is truly needed is aggressive financial reform at the federal level, which is impossible as long as The Legislative and Executive branches of government are allowed to profit in any way, i.e., contributions to political parties & candidates in elections, personal investments, and the insider trading laws that they are exempt from.
From a mortgage loan officer perspective, had Mr Berneke given 5 minutes of thought and oversight while Congress and the Fed were running wild over the lending business, we wouldn’t be having this discussion. Had our bank clone government left the original rules alone and modified some, we wouldn’t be having this conversation. As one who has been in the trenches since 1977, this current era was the worse overkill and damaging exercise in history. Even after the banks dreamed up the bogus loan programs, told us all what exactly to do, underwrote the bogus loans, funded and signed the check; AND THEN packaged C paper for A paper and sold them. The pension funds and other investors started getting defaults and the banks reply was basically “OOPS!. Then our dear government decides to bail out these crooks, all under the oversight of MR BERNEKE! He should never get a loan! As I predicted early on, that the pendulum would eventually swing back and loan programs from before would creep back in. I am now starting to see that happening. The market produces what the demands are and despite this government and the banks and Wall Street, the market will again produce loans to fit the nation’s needs. It’s just a damn shame so many people had to get blown up to learn this lesson! Criminal in fact!!