Former Federal Reserve chairman denied mortgage refinance

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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