Just over a month ago the media was buzzing with headlines about Ben Bernanke, and how even he, former chairman of the Federal Reserve, could not refinance his mortgage. The blame for something so seemingly unfathomable was placed on modern lending standards being too stringent. On October 16th, 2014, I posted a blog entitled, “Lending Standards are So Tight Even Ben Bernanke Can’t Refinance his Home Mortgage”. Since then, Forbes has shed a little bit of light to this shocking headline, and confirmed that indeed the sky is not falling on the housing market.
While Ben Bernanke was working for the Federal Reserve, he got paid a salary which was documented and easy to prove. However, now he is a Distinguished Fellow in Residence with the Economic Studies Program at the Brookings Institution with a very different pay structure. This new position is well paid, but it is not a “predictable, easily verifiable, high probability of continuation salary” according to Forbes. This means that it’s hard to predict how high or low he will be paid if at all, which is impossible for mortgage lenders to accept with today’s standards. Documentation to verify facts are needed for every aspect of the borrower’s financial picture. Forbes states, “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.” While it is true that stating how impossible it is to get a mortgage these days because Ben Bernanke can’t refinance is an overstatement, it is also true that it was Ben Bernanke himself who said, “The pendulum has swung too far”. Only time will tell which direction the market will go, and whether the credit standards in place truly have anything to do with it. If the standards do play a role in the direction of the housing market, time is still needed to determine how much weight it has in the success or lethargy of the market. Until then, even the most qualified financial experts and analysts cannot tell us what the future will hold, and we will simply have to see for ourselves.