Despite failed refi, Bernanke has plenty of mortgage options
An unidentified lender rejected Ben S. Bernanke’s request to refinance the loan on his Washington, D.C., house, but the former chairman of the Federal Reserve could easily have found a deal elsewhere had he looked around, mortgage experts said.
Bernanke disclosed his plight last week while speaking at a conference, saying: “I think the tightness of mortgage credit, lending, is still probably excessive.” The remarks went viral, and little wonder: The sentiment resonates across the nation these days.
Critics said that home lenders, smarting from tighter regulation and billion-dollar settlements over bad loans and mortgage securities, are denying loans that should be made even under today’s tougher government standards.
Frustrations run especially high among borrowers with good credit, earnings and assets who can’t get a loan because they, like Bernanke since he left the Fed in January, have irregular income with no pay stubs or haven’t held a job for the requisite two years.
Yet experts said Tuesday that they see a shifting tide.
A growing number of lenders have devised programs to help these out-of-the-box borrowers, they said, while obeying the master commandment imposed by regulators after the 2007 mortgage meltdown: Determine whether the borrower has the ability to repay the debt.
One way is to document that a borrower’s savings or liquid assets, those that could be turned into cash easily, are sufficient to repay the debt.
“I don’t know the dollar amount in Mr. Bernanke’s retirement accounts or the dollars in his regular savings, but using that as income has turned into a lot of fundings for us,” said Jeff Lazerson, who runs the Mortgage Grader brokerage in Laguna Niguel.
Such techniques mean that plenty of banks could refinance the $672,000 mortgage that Bernanke and his wife, Anna, obtained three years ago. The couple took advantage then of historically low interest rates — driven down by the Fed’s own policies — to replace a 5.375% loan with one at 4.25%.
The Bernankes purchased the 1,842-square-foot home for $839,000, property records show. Online real estate data firm Zillow estimates its current market value at $968,486.
Since leaving the Fed, Bernanke has gone on the lecture circuit for as much as six figures a pop. At a forum in Abu Dhabi in March, he earned $250,000, according to reports. That fee for 40 minutes was more than he earned last year at the Fed.
He also is working on his memoirs and is a distinguished fellow in residence at Washington’s Brookings Institution public policy research group, where spokesman D.J. Nordquist said Bernanke “isn’t doing any media” on his efforts to refinance the three-bedroom brick row house purchased in 2004.
Informed observers said a lender probably ran Bernanke’s request through one of the computerized screening programs common to the industry, which rejected him because he could no longer show two years of stable income from the same source.
That two-year rule, originated by government-run Fannie Mae and Freddie Mac, has become standard for lenders that sell their loans to the home financing giants, to larger banks and to the handful of Wall Street investors still crafting mortgage securities not backed by the government.
Jumbo mortgages such as Bernanke’s are too large for Fannie and Freddie to handle. But some credit unions, community banks and major banks keep a significant number of larger loans on their books.
“I’m sure Bernanke’s had at least 30 emails from portfolio lenders who are interested in speaking to him and probably would be able to accommodate him,” said Donovan Ternes, president of Provident Savings Bank in Riverside.
Provident holds nearly $540 million in residential first mortgages on its books, accounting for nearly half of its $1.1 billion in assets. “We could have that conversation” with Bernanke, Ternes said.
Some banks have developed loan programs such as Lazerson’s liquid assets approach to serve self-employed borrowers who, like Bernanke, fall outside the standard boxes created by Fannie, Freddie and the U.S. Consumer Financial Protection Bureau, which also sets up lending rules.
These programs, which generally require an excellent credit score, would be suitable for an older self-employed person such as Bernanke who could withdraw money from a 401(k) or an individual retirement account without penalty.
Bernanke, who reported assets of $1.1 million to $2.3 million back in 2011, probably would qualify under an asset-based program, said Jeff Seabold, chief lending officer at Banc of California in Irvine.
But such programs are only for those who can afford to meet the requirements. Banc of California, for instance, requires borrowers to have at least 30% in down payments or equity in the homes, Seabold said.
“Frankly, we think there’s a tremendous opportunity to make these loans,” he said.
Competitors offering similar portfolio mortgages to self-employed people, Seabold said, include City National Bank in Los Angeles, First Republic Bank and Union Bank in San Francisco, along with Wall Street giants JPMorgan Chase & Co. and HSBC Holdings Inc.
If Bernanke were looking for a more down-home approach, he could pick from any number of community banks in the Southeast, where he grew up in the small town of Dillon, S.C., said Christopher Marinac, director of research at investment bank FIG Partners in Atlanta.
“South State Bank in Columbia could help him out. Or Southcoast [Community Bank] in Charleston, or Southern First in Greenville,” Marinac said. “It’s all about know your customer, and that’s what they do.”
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