Things have come to a pretty pass when even Ben Bernanke can’t refinance his mortgage, as he lamented at a conference in Chicago on Thursday. It’s likely that the former chairman of the Federal Reserve can’t refinance his mortgage because most of his income comes from 1099 sources rather than W-2s. Never mind that these are very large 1099s—he gets at least $200,000 per speech, Bloomberg reported last month.
This is not the chart that shows what Bernanke and the rest of us are up against. It shows that mortgages are actually easier to get these days. The Mortgage Credit Availability Index has risen to around 116 as of last month from around 100 in 2012. Hard to see what all the fuss is about.
It’s when you pull back and look at a longer period that the problem becomes apparent. The chart below is the one that shows why even Ben Bernanke can’t refi his mortgage. It shows mortgage availability going from normal around 2004 to extremely lax in 2006, to extremely tight ever since. The increased availability that seems so prominent in the first chart is barely visible on the second.
The kind of loan that Bernanke is presumably trying to get is actually easier to obtain than the ones most Americans go for. It’s a jumbo–that is, too big to be bought by Fannie Mae or Freddie Mac, the two mortgage-finance giants. The last time he refinanced, in 2011, it was into a $672,000 loan. That’s above the 2014 conforming loan limit of $625,500 for the District of Columbia, where he owns a townhouse. Fewer regulations apply to jumbo loans because the wealthy people who apply for them are presumed to be more financially savvy. Even so, “the underwriting process is still more thorough, more stringent than it used to be,” says Joel Kan, economic forecasting director for the Mortgage Bankers Association.
The risk pendulum has clearly swung too far, from reckless to fraidy-cat, which is (not) the technical banking term. “I don’t blame this on Bernanke per se. I think it’s mostly Congress,” says Christopher Whalen, senior managing director at Kroll Bond Rating Agency in New York. Whalen says the Dodd-Frank Act of 2010 went too far in tightening mortgage-lending standards in response to the abuses that led to the 2008-09 financial crisis. “These are the same people who [before the crisis] were talking money from Fannie [Mae] and Freddie [Mac] with both hands,” Whalen says. “Now they want to act like Calvinists and punish everybody. We need to find a middle ground. It will take time.”
The heavy fines and settlements that banks have paid over past lending have contributed to banks’ reticence to lend. Plus, banks have been forced to buy back billions of dollars’ worth of loans they sold to Fannie and Freddie. Add it all up, says Whalen, and, Bernanke—along with plenty of other people—“is suffering here from a very broad, systemic shift.”