Ben Bernanke, the former Chairman of the Federal Reserve, said some interesting things during his speech at a conference hosted by the National Investment Center for Senior Housing and Care held in Chicago on October 2. The most controversial remarks he made were in regards to the lending regulations being imposed by banks which are preventing many Americans from getting a mortgage.
That’s What He Said
At the conference, Bernanke said during the Q&A session with economist Mark Zandi, “I recently tried to refinance my mortgage and I was unsuccessful in doing so.” Whether or not Bernanke was dead serious about his struggles to get a loan, or just speaking tongue and cheek to stir up some controversy, the reality is the current relationship between the Fed and the banks have made it extremely difficult to get a mortgage.
Clearly, the days of Alan Greenspan’s lax lending standards have changed drastically. While many point the finger at Greenspan’s lenient approach as one of the causes of the housing bubble, which would eventually burst and cause the Great Recession, even Bernanke admits that perhaps we are going too far in the opposite direction. “The housing area is one area where regulation has not yet got it right,” explained Bernanke who went on to say, “I think the tightness of mortgage credit, lending is still probably excessive.” Furthermore, "I think it's entirely possible [that lenders] may have gone a little bit too far on mortgage credit conditions," expressed Bernanke. It would seem the crux of what Bernanke was saying is that if a person like himself (who gets paid $250k per speech, with assets reportedly worth between $1.1 million and $2.3 million) cannot refinance their home, then we should reevaluate our current lending standards.
Unfortunately, it doesn’t appear the banks will become more relaxed on their lending standards and regulations any time soon. Their main focus is to play it safe and avoid another recession, while simultaneously figuring a way to inch our economy back to a healthy condition. However, that method may prove to be a long and arduous one, which is certainly not providing enough stimuli to the housing industry. Especially in the residential real estate market, where developers continue their struggles of gaining access to the funding necessary in order to purchase a home and get to work.
Related: How to Make Sense of Rehab Lending
What’s The Solution
Since obtaining a loan from a bank has become extremely difficult, people have started to look towards alternative lending solutions. As you may know, Patch of Land functions as an alternative lending source, particularly for developers who need the capital necessary to purchase, fix, and flip a property. By providing this solution for our borrowers we are also able to help stimulate the housing market.
There are a number of differences between Patch of Land and your typical bank. One of the differences that stand out the most is our underwriting methods. While our methods are stringent and take into account very similar data as any other lender would, we differ in that we’re not bound by what a computer tells us to do. Instead, we add a humanistic approach of evaluating our borrower’s lending credentials by looking at the numbers behind the numbers. Information such as an individual’s track record, work history, developer credentials, and other relevant data that tends to be disregarded by a computer, are also factored into the equation. In many cases, we are able to discover that their credit was just fine up until the economic downturn, which made it take a nose dive. After having personal conversations and performing our best due diligence practices to assess the situation, there have been a number of cases where we’ve accepted an applicant for a loan based on overwhelming evidence that contradicts what solely looking at the credit score might suggest.
Patch of Land takes pride in being an alternative lending source that’s been able to grant loans to perfectly qualified borrowers. One of our objectives is to help stimulate the housing market, which will help spawn more jobs within the construction industry, and ultimately help boost the U.S. economy. We look forward to expanding our relationships with many more real estate developers who have great project ideas, and who might also be in a similar position as outlined in this story.
Related: Growing with The Patch Part 2: The Underwriting Process
What do you think about Bernanke not being able to refinance his own home? Are the lending regulations in this country too strict? What do you think the future holds for banks and institutional lending in general? Please leave a comment and let us know what you think.
