Even the former Federal Reserve chairperson has it hard when it comes to mortgages.
Last week Ben Bernanke, the man who was entrusted with the work of setting interest rates for about 11 years, gave a speech in Chicago where he disclosed that he wasn't able to refinance his mortgage on his 1,870-square-foot home.
"I recently tried to refinance my mortgage and I was unsuccessful in doing so," he said at the conference.
Why?
Mortgage lending standards are super tight right now, that's why.
Industry experts weighed in on Bernanke's comments, which spread like wildfire in the property market, explaining that the former fed chief was probably having difficulty taking out a loan on his Washington D.C. home because he didn't really have a steady income or job.
This tweet explains it all:
Name: Ben Bernanke. Job? None. Other sources of income? I'm writing a book. And giving speeches. #DENIED
— Binyamin Appelbaum (@BCAppelbaum) October 2, 2014
After Bernanke stepped down as the Fed chief to make way for Janet Yellen, he has been heading a think tank. He gives a couple of speeches around the year for $250,000 an event and also has a million dollars advance for his upcoming book.
The lending system doesn't recognize future or irregular incomes and therefore, put him in the bad credit risk category, which disqualified Bernanke from acquiring a refinancing loan.
But with that kind of money, couldn't Bernanke just pay off the mortgage in one go? He could, but taking out a mortgage has its benefits for the rich. Richard Rubin of Bloomberg explains that the low interest rates prevailing in the market provide for great tax subsidies and open avenues for other investment opportunities.
The paradox between low mortgage rates and high lending standards has been a topic of much discussion of late. Rates have been kept low to promote more buying activity in America but that hasn't been working because the whole issue hinges on employment.
Tim Worstall for Forbes puts it like it is:
"In short, the mortgage interest deduction leads to unemployment higher than it would be without it and also this most odd example of someone trying to mortgage so as leverage their investments. Oh, and most of the benefit of the deduction goes to those already well off. It's probably time to curtail, if not entirely remove, the deduction."
