Former Federal Reserve chairman denied mortgage refinance
Strict banking regulations for mortgages mean that even prominent people have problems securing home loans – and former Federal Reserve Chairman Ben Bernanke is no exception.
Bernanke, who oversaw the financial crisis in 2008, said at an
investment conference in Chicago on Thursday that even he is not
eligible for a home loan under new banking regulations.
“Just between the two of us,” Bernanke told conference
moderator Mark Zandi of Moody’s Analytics, Inc., “I recently
tried to refinance my mortgage and I was unsuccessful in doing
so.”
The audience laughed thinking he was joking, but he told them he
was not making it up, according to Bloomberg News.
“I think it’s entirely possible ‘that lenders’ may have gone
a little too far on mortgage credit conditions,” Bernanke
added.
Despite the Federal Reserve Bank keeping interest rates low to
stave off inflation, banks have tightened credit standards beyond
what is typically allowed by government agencies and
mortgage-finance companies, in order to avoid regulatory
problems.
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Now banks are worried they will be held accountable if borrowers
default, and they are under pressure not to take major risks on
their balance sheets. New mortgages are tied to credit scores and
employment histories, and Bernanke has just got a new job, which
makes him a higher risk.
The New York Times reported that Bernanke is a new an employee of
a think-tank and “makes a reported $250,000 for giving a
speech and has signed a book contract that is surely in the seven
figures. His income in the next couple of years will surely dwarf
the value of his house...”
Since his income is not coming from a regular, salaried
government job like the one he had when he was chairman of the
Federal Reserve Bank, however, it is not considered to be stable.
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The financial crisis in 2008 showed the financial sector’s
vulnerabilities by revealing banking and mortgage institutions
saddled with debt from failing mortgages, spiraling consumer
debt, and from banks over-leveraging derivatives like credit
default swaps. The Dodd-Frank financial reform laws – passed in
the wake of the crisis – gave regulators far more control over
whether banks can issue a mortgage or business loan than before,
but some critics argue there have been some downsides.
“A lot of the new rules that have gone into effect over the
past five years take away much of the judgment bankers were
allowed to exercise in the past,” said Wayne Abernathy of
the American Bankers Association to NPR. That has resulted in a
mortgage market that suffers from a “lack of
flexibility.”
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