In a speech given by the recently retired chairman of the Federal Reserve, he said he was turned down trying to refinance his Washington D.C. home. That raised a whole bunch of interesting questions as to why the second-most powerful person in the world, someone with incredible connections, would get the thumbs down.
Did he have bad credit? Was he overextended? Did he want a mega-million dollar mortgage? Few of us know the answer to the first two questions. As to his home, that’s public information. It seems Ben Bernanke wanted a $672,000 refinance on his home which is worth, according to Zillow, $968,000. That’s less than a 70 percent loan-to-value ratio.
So assuming Bernanke has good credit and isn’t in hock up to his eyeballs, why was he rejected? Well, he is now faced with many of the problems mere mortals have who want to try something new. He went from having a steady full-time job to be a self-employed entrepreneur. As I have said for many years, being self-employed makes getting a mortgage tough. Most people have a hard time conforming to the strict government standards.
In Bernanke’s situation, he just started his new career so he can’t produce two years of tax returns showing his self-employed income. In his case, the first speech he gave earned more than his annual salary at the Fed. He also joined a D.C. think tank and got a seven-figure advance on his new book. My guess is he will be invited to join the board of directors of many prominent companies and give more speeches. This will probably get him a nice eight-figure income. But most banks don’t lend on the future.
So what’s Big Ben to do? According to Andy Block of Opes Advisors, he needs a mortgage that looks at other things.
He has, according to published records, assets several times the amount he wishes to borrow plus a really nice guaranteed government pension. He could also prepare a profit and loss statement for his new consulting business, that’s only been around for a few months, and show how he’s done. In his case, his income so far is already several times the amount he wishes to borrow.
He also needs to go to a different type of lender that doesn’t adhere to the cookie-cutter government lending criteria. There are many banks, both big and small, that make portfolio loans. That means they don’t resell their mortgages to Fannie Mae or FHA but keep these as investments and live off the income it generates. These type of lenders can be much more flexible in how they review an application.
Of course, Bernanake has incredible connections. He could easily call the head of any of the banks (many are on his speed dial) and the loan would be approved before the end of the conversation. Most of us aren’t that lucky.
Sad to say, banks are not doing loans that were geared to this large segment of the market. Those stated income or limited documentation loans are a thing of the past due to the abuses of a small group of people. Personally, I think they will resurface in some form but that may not be for a few more years.
But some of the banks are being a little more flexible in trying to help the self-employed. There are programs that will look both at your current P&L as well as your assets to see if the income they will cover the mortgage payments.
Mortgage brokers are a good source as they have relationships with many different lenders and can save you a lot of time cause they know who are doing these loans. If you have a long-standing relationship with a commercial bank, it will put a lot of stock in that and can create some type of hybrid loan that will work for you. So don’t overlook that option.
But if Bernanke is reading this (I should be so lucky) and still having problems getting a mortgage, please call Andy. He will be glad to assist you.
Steven Hyman is the broker and owner of Century 21 Sunset Properties. He can be reached at 726-6346 or at www.century21sunset.com