By Nick Timiraos
Just how inflexible are lending standards these days? Ben Bernanke said at a conference Thursday that he’d been unable recently to refinance his mortgage.
“It’s entirely possible” that lenders “may have gone a little bit too far on mortgage credit conditions,” he said at a conference in Chicago, according to Bloomberg News.
But wait. Surely a man with high income, lots of equity in his home, good credit and a solid net worth must be able to get a mortgage. Mr. Bernanke stepped down as the chairman of the Federal Reserve in January and joined the Brookings Institution as a “distinguished fellow in residence.” He’s also writing a memoir and giving speeches (reportedly for hefty speaking fees).
The broader point Mr. Bernanke was making isn’t that credit standards on their own are unnecessarily restrictive. Borrowers who can make a 3.5% down payment with a 650-ish credit score and two years of stable income can qualify for a loan backed by the Federal Housing Administration.
Instead, the issue is one of nuance—or the lack thereof. Lenders have grown to rely heavily on automated underwriting systems and the requisite documentation of borrower incomes, the sources of their down-payment funds and anything else that’s fed into those computers to determine whether a borrower qualifies for a loan.
This can result in the odd situation in which 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 mortgage-finance giants Fannie Mae and Freddie Mac for violations of underwriting protocols—some are legitimate frauds, while others are the underwriting equivalent, lenders say, of foot faults.
As for Mr. Bernanke, he’s 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. Credit is no tighter now than it was then and home prices have gone up.
One thing that may have changed for Mr. Bernanke besides his employment situation: His loan might be too big to qualify for government backing. The Journal reported in 2011 that he owed $672,000 on his mortgage after refinancing it that September. The refinance closed days before the conforming loan limit—the maximum amount that qualifies for backing from Fannie and Freddie—in the Washington, D.C., area dropped to $625,500, from the previous limit of $729,750.
While jumbo mortgages have in some cases actually carried slightly lower interest rates over the past year than conforming loans have, they typically require more equity. If Mr. Bernanke hasn’t substantially paid down the principal on that loan, then he’d need to pay down the balance to qualify for the conforming loan.
And while interest rates on 30-year, fixed-rate mortgages were lower in early 2013, in recent months they’ve been about the same as where they were the last time Mr. Bernanke refinanced. Back then, in 2011, he got a 4.25% fixed-rate mortgage.