Ben Bernanke stepped down as Chairman of the Federal Reserve earlier this year after leading the U.S. economic recovery through its deepest crisis that included a credit crunch with which many borrowers are still grappling.
But as creditworthy as Bernanke is — he makes a reported $250,000 per speech and has signed a huge book contract — he was turned down for a refinancing of his home mortgage.
His income over the next three to five years is projected to easily blow past the value of his house, which he and his wife purchased for $839,000 in 2004. It is now assessed at $815,000, according to District of Columbia property records.
“Just between us,” he told an audience from the stage at a conference in Chicago on Thursday. “I recently tried to refinance my mortgage and I was unsuccessful in doing so.”
So why would such a bankable financial industry star be denied a new mortgage?
He just changed his job a few months ago and that’s a big negative in the tight-credit, current risk-adverse lending landscape. The fact is that even if you get a higher-paying job, the mortgage finance industry still recognizes that change as a steeper credit risk than having the same job for several years. It’s an even bigger obstacle if you switch from a salaried and stable job to a contractor’s or free-lancer’s position, where you are paid by the hour, per appearance or for each consulting project.
“The biggest issue that we see with changes in employment is when a change in pay structure occurs,” said Jim Woodworth, a mortgage specialist at Quicken Loans, in an article on that company’s site. “For example, someone that goes from a salaried position to a commissioned position will encounter some obstacles with applying for a loan, even if the new job results in higher income.”
At the Chicago event, Bernanke was using his own experience in the refinancing arena to make a point that mortgage credit is still tighter than it should be.
The bigger question that remains is why would Bernanke seek to refinance his home.
Bernanke, 60, did not offer an explanation. He is a fellow at the think-tank Brookings Institution.
As of Dec. 31, Bernanke had a 30-year loan with a 4.25 percent interest rate, according to a disclosure form he filed this year as he was leaving the Fed. He and his wife, Anna, took out that $672,000 loan in 2011 on their Capitol Hill rowhouse.
Interest rates this week are very close to Bernanke’s current rate. Freddie Mac reported that the 30-year fixed rate average is at 4.19 percent, just a notch below last week’s 4.20 percent.