Hey, did you hear the story about the former Federal Reserve chairman who couldn’t get his mortgage refinanced?
What’s the punch line, you may ask? There isn’t one. It really happened.
According to Bloomberg News, Ben S. Bernanke told a Chicago audience, “I recently tried to refinance my mortgage, and I was unsuccessful in doing so.” Laughter immediately filled up the auditorium, until he said with a straight face, “I’m not making that up.”
The number of jaws that collectively hit the floor that day caused a massive tremor at the Earth’s core.
New York Times senior economics correspondent Neil Irwin, to his credit, came up with a plausible explanation. Mr. Bernanke “just changed jobs a few months ago … in the thoroughly automated world of mortgage finance, having recently changed jobs makes you a steeper credit risk.”
My family has been involved in mortgages and investments for more than 50 years, so I think Mr. Irwin’s assessment makes a great deal of sense.
Let’s not beat around the bush, however. When a two-term, ex-Federal Reserve chief can’t get a refinanced mortgage, it says a lot about the sorry state of U.S. real estate.
Mr. Bernanke, according to Fox News, “was paid $199,750 annually as head of the central bank and reportedly earned $250,000 in March for his first public speaking engagement.” Meanwhile, “[h]e also reportedly received $1 million in a deal to write his memoirs.”
Some may wonder why he needed a mortgage to begin with. Regardless, his name and reputation alone should have automatically trumped the concerns of an impersonal computer program.
It does make you wonder about the dismal atmosphere of today’s real estate market.
Let’s continue. Adam Bonislawski recently wrote in The Wall Street Journal about the “beautiful, historic and inexpensive homes — bargain mansions, if you will readily available in many old industrial cities in the Midwest and Northeast.” These properties were originally constructed during real estate boom periods, but “fell into disrepair as local economies faltered, giving today’s buyers an opportunity to pick up a palatial abode on the cheap.”
For example, there is a “fully renovated, 11,448-square foot home with six bedrooms and 4 bathrooms” in St. Louis for $649,000. Meanwhile, “an eight-bedroom, seven-bath 5,605-square-foot Mediterranean-style mansion” sits on the Detroit market for $365,000. If you want something more elaborate, a “10-bedroom, eight-bathroom 18,198-square-foot estate with elaborate Victorian details” in Toledo, Ohio, is currently listed at $284,777.
What does this show? Contrary to popular belief, the nation still hasn’t fully recovered from the 2008 subprime mortgage crisis. If anything, U.S. real estate, pound for pound, could very well be on worse footing now than it was six years ago.
There is no longer any hope for a relatively early recovery of the housing market. In my opinion, real estate prices could continue to stagnate for at least another decade, if not longer.
This is something the White House should be concerned about. President Obama, therefore, needs to take immediate action to help kick-start the flagging real estate industry.
Here are four suggestions.
First, pass substantial tax cuts to create more annual take-home pay for individuals and families. This would enable people to start saving for a significant down payment on a house. When this occurs, the real estate market would begin to rev up, home prices would start to increase — and the economy would flourish.
Second, introduce new tax incentives for first-time homebuyers. The qualifications could include: age, marital status, professional background, years of military service, geographical location and income potential. The ultimate goal would be to create more homeowners and fewer apartment dwellers.
Third, shut down Fannie Mae and Freddie Mac. These two government-sponsored enterprises have been closely linked to Democratic and Republican politicians for decades. They played a huge role in the subprime mortgage crisis. They were bailed out by taxpayers at a cost of nearly $154 billion. Fannie Mae and Freddie Mac are a drain on the economy, and Americans can do without them.
Fourth, increase private-sector involvement. It should be left up to the free market to determine housing prices, mortgage rates and overall costs. Let the private sector, and not the intrusive hand of government, make real estate healthy again.
Who knows? Maybe these suggestions will create the necessary economic conditions to help poor souls like Mr. Bernanke get their mortgages refinanced.
Michael Taube is a contributor to The Washington Times.