The Myth of Ben Bernanke: The Man Who Can’t Get A Mortgage

Ben Bernanke, the former chairman of the Federal Reserve, can’t get a mortgage.

This statement is complete nonsense, but nonsense being repeated to support the claim that mortgage underwriting is too tough and — of course — it’s the fault  of Wall Street Reform. Before you get out the old checkbook and send money to the “Ben Bernanke Housing Relief Society” let’s take a look at how the world  really works.

Speaking at Chicago financial conference, Bernanke is quoted by Bloomberg as saying that “I recently tried to refinance my  mortgage and I was unsuccessful in doing so.”

Bernanke does not say why his application was rejected, but let’s try to figure this out.

Property records show that Bernanke lives in a four-story Capitol Hill townhouse bought new in 2004 for $839,000. The home has three bedrooms, 2.5 baths and is now worth over $1 million, according to RealtyTrac. In comparison, according to the National Association of Realtors, the typical existing home sold for $219,800 in August.

According to Bloomberg’s Michael McKee, Bernanke “types in his form, he sends it into the computer and the computer looks at it and says, ‘well you had a job for 11  years you’re unemployed now.'”

The speculation is that Bernanke could not refinance because the computer sees him as “unemployed,” thus the claim that mortgage underwriting is too tight.

In the real world — the one we actually live in — nobody with any sense applies for a loan online, is rejected, and then says, “Oh well.”

The obvious missing step is to try another site or contact a lender and speak with an actual human being, someone who in this case will gleefully shepherd the Bernanke application through the system. In doing so a loan officer might take note of the fact that Bernanke signed a book deal this year with W.W. Norton & Co. for an estimated $1 million and that he commands a reported $200,000 to $400,000 per speech.

So yes, Mr. Bernanke is “unemployed” but not in the same sense as a laid-off factory worker or the company employee who faces the loss of a pension because his company has gone bankrupt. Underwriting rules do not require “employment,” they require credit, assets and cash flow. If you get $600,000 a year from a trust fund you can get a mortgage even if you have not held a job since high school. And surely there’s no doubt that Bernanke has a certain market value which will continue for years if not decades. Paul Volcker, another formed Fed chairman, now gets a mere $40,000 per speech — and he last held office in 1987.

Tight Credit According to EllieMae, credit standards have become more loose as of late: Its figures show that a typical successful mortgage application in August had an average credit score of 727 versus 743 in May 2013.

The Mortgage Bankers Association reports that its Mortgage Credit Availability Index (MCAI) now stands at 116.1, up from the benchmark 100 level achieved in March 2012.

Now you might think that going from 100 to 116.1 is quite an improvement and that credit standards have surely eased but if we go back further we can see a completely different picture because in 2007 credit availability was higher. Much higher.

“If the MCAI had been tracked in 2007,” said the MBA in April, “it would have been at a level of roughly 800, indicating the credit was much more available at that time.”

Some have taken such statements to mean that lenders want to return to the glory years of 2006 and 2007 when mortgages were as easy to get as aspirin, but that’s not the case. As MBA spokesman Shawn Ryan explained last April in an email exchange with me: “We believe credit is too tight now. But we are not calling  for lending standards to be as loose as they were in 2007. We simply believe  the market has over-corrected and that the best place for credit availability to be is in the middle. That way those who can truly afford loans can get them and we aren’t risking a replay of what we saw six years ago.”

In fact, for better perspective the MBA has developed a second chart for its mortgage availability news releases to show how credit opportunities have remained fairly constant for the past few years.

Why not go back to 2007?

It’s certainly true that loans were easy to get back then but there has been a real  price for “nontraditional” financing such as no doc loans, option ARMs and  interest-only financing. The cost? Foreclosure rates soared and we still feel  the impact. At the end of 2013 the MBA estimated that 91 percent of all seriously delinquent loans were actually originated before 2009, the  good-old-days of easy credit.

Today most lenders won’t touch iffy loans. The latest “Quarterly Senior Loan Officer Survey” from the Federal Reserve claims that 66 of 70 institutions do not originate subprime residential mortgages while 35 do not offer nontraditional financing. The ability-to-repay rule under Dodd-Frank requires lenders to verify that borrowers have the financial capacity to, well, repay their loans, meaning that no-doc residential loans are effectively banned.

“The problem,” according to National Mortgage  News, “is that the Dodd-Frank Act requires lenders to verify borrowers’ ability to repay the principal and interest on nonqualified loans over the long term, but it leaves them with a lot of discretion — or enough rope to hang themselves, depending on one’s perspective.”

Well, yes, but so what? The need for discretion didn’t start with Wall Street Reform. Lenders have been making loan decisions since tower construction first began in Babylon, if not earlier. That’s what lenders do, it’s their job. If no discretion is involved you don’t need lenders but you might leave poor and befuddled Mr. Bernanke pounding on a computer screen and yelling at an  automated underwriting program.

And that, as you will recall, produces claims that even a rich guy like a former Fed chairman can’t get a mortgage today because of tight credit, claims which are ridiculous if lenders are willing to do their jobs and borrowers don’t simply take “no” for an answer when entering data online.

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