Ben Bernanke, the former Federal Reserve chairman, revealed at a conference in Chicago that he had tried to refinance his mortgage, but was unsuccessful in doing so.
Bernanke’s remarks highlight the prevailing inflexible lending standards.
Ben Bernanke: Hard to refinance
Speaking at a conference of the National Investment Center for Seniors Housing and Care in Chicago Thursday, Bernanke told moderator Mark Zandi of Moody’s Analytics Inc.: “I recently tried to refinance my mortgage and I was unsuccessful in doing so”. He added: “It’s entirely possible” that lenders “may have gone a little bit too far on mortgage credit conditions”.
Ben Bernanke has refinanced the mortgage on his Capitol Hill house since he and his wife bought it in 2004 for $839,000, once in 2009 and again in 2011. Interestingly, credit is not as tight as it was when home prices have gone up earlier.
Ben Bernanke stepped down as the chairman of the Federal Reserve in January and joined the Brookings Institution as a “distinguished fellow in residence”.
Apart from change in his employment situation, his loan might be too big to qualify for government backing. The Wall Street Journal reported in 2011 that Ben Bernanke owed $672,000 on his mortgage after refinancing it that September. Interestingly, the refinance closed before the conforming loan limit in Washington D.C. area dropped to $625,500 from the earlier limit of $729,750. His property was appraised at $880,700 as of last year.
Inflexible lending standards
As reported earlier, Timothy J. Mayopoulos, president and chief executive officer of Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA), pointed out that Fannie Mae has substantially improved its credit quality, advanced appropriate underwriting standards, and increased pricing to better reflect risk, besides strengthening its collection and reporting mechanisms.
He, however, cautioned that overhauling everything about the current system could result in negative long-term consequences for the housing market and the stability of the U.S. economy.
With lenders increasingly relying on automated underwriting systems, a perfectly qualified borrower might find a loan officer who’s unwilling to process a loan. Lenders have blamed their defensive underwriting postures on new regulations and on the billions of dollars in loans they’ve been forced to buy back from the GSEs for violations of underwriting protocols.
Highlighting the tight mortgage credit situation, Bernanke also noted on Thursday that the first-time home buyer market is “not what it should be” as the economy in general strengthens. Ben Bernanke said: “The housing area is one area where regulations have not yet got it right. I think the tightness of mortgage credit lending is still probably excessive”.