Yes, you read that correctly. Ben Bernanke, former chairman of the Federal Reserve recently applied to refinance his home mortgage and was shocked to hear the results: that he had been denied. At an October conference in Chicago, IL hosted by the National Investment Center for Senior Housing and Care, Bernanke revealed this information to the public stating, “I recently tried to refinance my mortgage and I was unsuccessful in doing so”. When the crowd laughed at the utter ridiculousness of Bernanke’s comment, he continued to state, “I’m not making that up”. Not only was Bernanke chairman of the Federal Reserve, but he has substantial net worth, “estimated between $1.1 million and $2.3 million, and he makes hundreds of thousands of dollars from textbook royalties and speaking fees” according to CNN Money. CNN Money also mentioned Bernanke’s pay in 2013 of $199,700, and noted that he is now supposedly receiving as much as $250,000 per speech.
Records detailed that the Washington D.C. house on Capitol Hill that Bernanke tried to refinance was purchased back in 2004 for $839,000. The house is a 3 bedroom 2-1/2 bathroom unit. CNN Money reports that it is assessed today at $880,700, but Zillow values it at a whopping $965,468. The home was purchased with a 30-year mortgage housing a 4.25% interest rate. He refinanced his home in 2011, and was recently trying to do it a second time (NASDAQ).
Bernanke’s net worth in relation to the value of his home should be enough for lenders to feel safe in refinancing his mortgage, but it is evident that standards are too tight, thus significantly stunting the growth of the housing market. “I think it’s entirely possible [that lenders] may have gone a little bit too far on mortgage credit conditions” Bernanke said (NASDAQ). Bernanke states that “the housing area is one area where regulation has not yet got it right. I think the tightness of mortgage credit, lending is still probably excessive” (CNN Money). Events like this may further stunt the growth of the housing market, as the millennial generation is already discouraged to buy a home due to the stringent requirements. Millennials are currently predominantly renters, even if they make good money and are (seemingly) financially stable enough to own a home. Not allowing the former chairman of the Federal Reserve to refinance his home is not exactly enticing millennials to run over to their lenders and purchase a mortgage. Even more discouraging is the fact that becoming a first time homeowner is way more difficult than refinancing—so if Ben Bernanke can’t, then who can?
Lenders are clearly still scarred by the burst of the housing bubble in 2008, which resulted from Bernanke’s predecessor Alan Greenspan’s relaxed lending standards. While Greenspan was in power, there was limited regulation on the mortgage industry, and it was all fun and games until somebody (namely the United States economy) got hurt. Bear Stearns and Lehman Brothers failed, and stocks plummeted. When Bernanke had to pick up the pieces of this financial mess, he vowed to do anything, no matter how unorthodox to fix it. He launched Quantitative Easing, which funnels money into the market in order to bring interest rates down and encourage consumers. At the same time, heavy regulation was placed on the mortgage lending industry in order to reduce risk. Evidently, it reduced risk so much that it induced fear in lenders to have anything less than a perfect borrower. Due to this, banks and lenders are hesitant to ease lending standards. There has been economic growth in the job market, but lenders still have yet to buy in to the recovering economy. It was noted that the easy money of Quantitative Easing had created a world of investors dependent on it to buy stocks and risky investments (CNN Money). The fragility of the situation has created a pattern of United States lenders choosing to tread lightly.