It looks as though things are coming full circle. Ben Bernanke, former Chairman of the Federal Reserve, is finding is difficult to refinance his home (NYTimes Article). Why? Ability to repay!
He recently left his secure (?) salaried position with the Federal Reserve and is now self-employed; basically as consultant/speaker and author; albeit his has not yet had a book published. In essence, it might be difficult for a lender to prove Mr. Bernanke’s ability to repay, under the new Dodd-Frank rules, based on potential for projected income.
Rules are rules, and the new ability to repay rules handcuff a lender from taking certain risks when lending. More than the standard lending risks of potential loss of revenue is the risk of a federal law suit instituted by the consumer against the lending entity and its owners/principles under the new ability to repay law. The consumer may claim, and a lender must defend in federal court, that the lender did not adequately verify and validate the consumer’s ability to repay the debt resulting from the new mortgage. Double jeopardy; lose the loan revenue and potentially lose your company. Is it worth the risk?
Until the new laws are fully tested, many lenders choose not to be the guinea pigs and stick closely to lending only to those consumers who qualify for what is known as a Qualified Mortgage, which provides the lender with a safe harbor from the ability to repay consumer challenge. Unless the lender can clearly verify a consumer’s ability and willingness to repay the new loan requested, they just won’t lend.
Lenders voiced these concerns when the new laws were recommended and enacted. These so called “added safeguards” implemented to protect the consumers have had some adverse effects of shutting out many consumers from access to affordable credit, and in reducing the potential borrowing pool for lenders. This also hurts realtors, builders, home sellers and related industries, all which depend on a vibrant, robust home sale market. Fewer qualified candidates results in fewer buyers adversely effecting real estate values in the long run. As the real estate market goes, so goes the economy; a poor market results in a poor economy.
Unfortunately, Mr. Bernanke is not alone. Maybe he can ask his friends up on Capitol Hill if they are willing to front him the money until his employment, and ability to repay, is stabilized.