When Bloomberg reported earlier this month that former Fed Chair Ben Bernanke was unable to refinance his mortgage, the financial and regulatory conspiracy theorists wasted no time offering up their expertise as to why. “The pendulum had swung too far, changing jobs is a deal breaker, jumbo loans are harder to get, jumbo loans are easier to get, the mortgage interest tax deduction is evil, the 2-year rule got `em, if this guy is having trouble, the rest of us are doomed, and on and on”
A host of “informed insiders” and “industry experts” were quick to deride current mortgage lending practices and opined about how credit is too tight and how it is hurting the economy in general and the housing markets and consumer financial wherewithal specifically.
The narrow scope of automated underwriting was named as a suspect and one report went so far as to blame the newly promulgated Ability-To-Repay rule as over-reaching. With the great Ben Bernanke as the poster boy, credit critics served up the ridiculousness of the circumstances as validation that the brave new mortgage world is in fact broken.
It is not. The sky is not falling. There is a very simple explanation for why Ben Bernanke is not a slam dunk mortgage approval.
Ben Bernanke got paid a salary while he was working at the Fed, predictable, easily verifiable high probability of continuation and easy to document, and like it or not, mortgage lending is now all about documentation. Don’t tell me how much you make, show me.
But now as a Distinguished Fellow in Residence with the Economic Studies Program at the Brookings Institution, he is not paid a predictable, easily verifiable, high probability of continuation salary. And although his income will be substantial, there is no verifiable track record, no way to document his ability to continually earn what he is expected to earn. He does not have the requisite history to satisfy the CFPB (Consumer Financial Protection Bureau), ATR and QM guidelines. Being the former Fed Chair makes for great headlines, but mortgage financing is about objective proof, if you don’t have it, you don’t get approved. Pretty simple math.
It is a safe bet that Mr. Bernanke will be availed other opportunities to address his refinancing pursuits, as he should be, he is the former Chairman of the Federal Reserve Bank for goodness sake! But the idea that mortgage lending standards and credit guidelines have become so tight as to be crippling the economy and hurting consumers needs further vetting. The Ability-To-Repay rule and Qualified Mortgage guidelines are barely 10 months old, and while I may not always agree with the CFPB, maybe these initiatives need more seasoning before we decide that they need to be repealed.
