October 25th, 2014
in Op Ed
by Shah Gilani, Money Morning
Ben Bernanke began his tenure as Chairman of the Federal Reserve Board just as the housing bubble was peaking in February 2006.
He exited the post in February of this year after supposedly shepherding the country out of the Great Recession the mortgage crisis spawned.
He recently admitted the housing recovery is hitting a wall.
But this time, it's personal...
"Lenders have gone a little bit too far..."
The former Most Powerful Man in the World, who at the Fed dished out trillions of dollars to banks, admitted a couple of weeks ago, "I recently tried to refinance my mortgage and I was unsuccessful."
When the audience at the convention in Chicago for the National Investment Center for Seniors Housing and Care heard Bernanke's remark to moderator Mark Zandi of Moody's Analytics, they laughed at what they thought was meant to be humorous.
Bernanke looked at the audience and said:
"I'm not making that up. I think it's entirely possible that lenders have gone a little bit too far on mortgage credit conditions."
That stunning admission points to the fragility of what's already become a suspect housing recovery.
Bernanke, now a Washington D.C. Brookings Institute fellow-in-residence, gets as much as $250,000 to speak at events and has a net worth between $1.1 million and $2.3 million (according to Fed records). He was turned down when he wanted to refinance the $672,000, 30-year fixed mortgage on his Washington D.C. townhouse from 4.25% down to 4.19%.
Although Bernanke's FICO credit score isn't publicly known, it may not be as high as 735, which is what most lenders on conventional mortgages are demanding these days.
Or Bernanke could have been denied on account of a low appraisal, which is possible - although according to Zillow, the townhouse is estimated to be worth $968,486.
Or it could have been the former Chairman's past two years of "steady income history." After leaving the Fed, where Congress determined his salary (for 2014 the salary is $201,700), Bernanke may have had only periodic speaking engagements which lenders would not look on as steady income.
While no one is shedding a tear for Ben Bernanke, because in truth there are now lenders lining up to offer him mortgages, it's the rest of the great majority of the public that can't get mortgages, for any or all of the same reasons as Bernanke, that the country needs to worry about.
It's not possible for the housing market to sustain any kind of recovery if there isn't credit available to would-be buyers of homes. Since the mortgage crisis, lending standards have been pushed skyward by nervous lenders. Most of those mortgage lenders are banks that securitized pools of their own mortgages or sold mortgages they made to securitizers, who sold the packaged pools to investors.
The originators of those mortgages have been forced to buy back hundreds of billions of dollars of those mortgages when defaulting homeowners caused the securities they were packaged into to fall in value. This kicked in "warranties" that obligated lenders to buy back bad loans.
Where the Housing Market (Really) Stands Now
Mortgage origination data has been up and down, with housing recovery advocates pointing to the positive "up" numbers and recovery detractors pointing to the "down" numbers. In truth, a big jump up in mortgage originations isn't anything to clap about, any more than a drop in originations is especially telling.
What is telling is where we are in the overall mortgage credit picture.
According to the Mortgage Bankers Association, mortgage applications last week were approximately 43% below the same week back in October 1998. At the peak of the credit bubble, applications were twice the level they were in the same 1998 period.
The MBA's credit availability index came in at 116 in September, the lowest level since the 2008 crisis. The index peaked in 2006 at a staggering 900.
A new standards-based, credit availability index constructed by CoreLogic, points to 2014 as the toughest year in terms of standards since, again, all the way back to 1998.
It's been well-documented that the rise in housing since the mortgage meltdown has mostly been attributed to cash purchasers, many of them from overseas. There are also the institutional buyers who raise billions of dollars in the bond market to buy housing stock to rent homes and eventually package rental properties into securitized pools.
Without sufficient mortgage credit availability the incipient, already overblown, housing recovery will hit a wall and likely reverse course.
When the former Chairman of the Federal Reserve can't get a mortgage, there's trouble ahead for housing.
The "housing recovery" we're being sold is a sham - a dangerous one. That's just one of the threats to our wealth and prosperity Shah is tracking. To get all of his Wall Street Insights & Indictments, free, click here.