This morning, I read that former Fed Chairman, Ben Bernanke, was unsuccessful in his attempt to refinance his mortgage, even though he commands fess of up to $250K for individual speaking engagements. He is quoted as saying: “I think it’s entirely possible [that lenders] may have gone a little bit to far on mortgage credit conditions . . .The housing area is one area where the regulation has not yet got it right.” I agree and disagree, and here is why.
Reportedly, Bernanke, who had earned nearly $200K per year as the Fed Chairman is now self-employed. For many years, lenders have required proof of income for self-employed borrowers in the form of two years of federal tax returns to document income stability, and that makes sense. Bernanke left the Fed less than two years ago, so it follows that he cannot document his income. These requirements are set by Fannie Mae and Freddie Mac for loans that can be sold on the secondary market, and, in my mind, do not qualify as “regulation” in the context of Bernanke’s statement.
Looking back a few years, the housing market crisis was fueled by lenders offering loans that required no income documentation, then packaging and selling those loans in the secondary market. From the outset, a reasonable person would have concluded that the borrowers, in many of these instances, would have difficulty repaying these loans, especially in an environment where housing prices were declining.
There was little regulation at that time regarding the types of products that lenders were offering, and by playing “hot potato” with these loans on the secondary market, lenders caused significant injuries to the economy as a whole. For a former Fed Chairman to insinuate that income documentation is a form of over-regulation misses the point.
The current state of regulation in the mortgage industry favors big lenders over smaller ones, and places a huge burden of compliance and disclosure on mortgage brokers, disproportionately. Unlike lenders, mortgage brokers are required to disclose all of their income to borrowers at the outset of the loan application process, and income is set as a percentage of the loan amount, no matter what interest rate is offered to a borrower. Big national lenders have a different set of rule, and are not subject to the same disclosure requirements.
Mortgage brokers can offer lower rates than lenders, because they generally are leaner, have lower overhead, and they set their pre-determined compensation rates low. Borrowers often times lose sight of the fact that, in most cases, the people that handle the loan conditions on any loan file have more experience than workers holed up in cubicles at national banks, and they have a vested interest in getting a loan submitted, approved and closed in a timely manner.
First Indiana Mortgage is a mortgage broker, and we encourage you to visit our website at www.firstindianamortgage.com
This morning, I read that former Fed Chairman, Ben Bernanke, was unsuccessful in his attempt to refinance his mortgage, even though he commands fess of up to $250K for individual speaking engagements. He is quoted as saying: “I think it’s entirely possible [that lenders] may have gone a little bit to far on mortgage credit […]