Why you and Ben Bernanke can’t get a mortgage

If you are one of the millions of Americans with a good household income and reasonably good credit who cannot get a mortgage to buy a home, I have bad news:  The lawyers, lobbyists and politicians in Washington, DC have no intention of making a mortgage loan available to you or even Ben Bernanke anytime soon. The former Fed Chair recently said he got turned down in an attempt to refinance his mortgage.

Don’t blame the bankers, though.  It is your government and your elected officials who stand between you and your dream house.

{mosads}It’s been exactly six years since former Fed Chair Alan Greenspan described the housing crisis and the collapse of the mortgage finance systems as a “once in a century credit tsunami.”

While the storm may have passed, the damage remains.

After being taken over by the federal government, the American mortgage finance system still hasn’t been fixed, and it may not be for several more years.    

No one argues that mortgage lenders should be left to their own devices. But respected leaders are now saying that Washington has swung from reckless disregard of what lenders were doing to extreme micromanagement of the lending process. 

The result is a major shortage of home mortgage loans, especially for people of color and at lower income levels. That in turn has kept unemployment stubbornly high as home sales and new home construction have remained sluggish. Earlier this year, the Mortgage Bankers Association said that its index measuring the availability of mortgage credit had declined by 75 percent from the pre-bubble level of 2004.

After the foreclosure crisis, the federal government became the conservator of Fannie Mae and Freddie Mac, which provide liquidity to the lenders who make mortgage loans. The first day of the conservatorship was Sept. 8, 2008, marking the peak of a disaster that left millions of Americans with homes that were worth less than their mortgages or worse, with no homes at all.

You could read dozens of books about the complexities of what’s going on in Washington, but it boils down to two basic and stubborn problems.

The first is uncertainty about the future of Fannie Mae and Freddie Mac. A full six years after they were taken over by the government, there’s no way to tell when they will be replaced, restructured or restored to private ownership. This puts a drag on the supply of mortgage credit, particularly for the minorities and low- and moderate-income folks who benefited most from Fannie Mae and Freddie Mac programs.

The second problem has to do with the Dodd–Frank Wall Street Reform and Consumer Protection Act, which became law back in 2010. Many of its provisions have yet to be fully implemented. The entire process has created so much uncertainty and so much fear of legal liability among lenders that they will only make loans to people where there is very little risk.  This leaves out a lot of Americans who are perfectly capable of paying off a 30-year, fixed-rate loan. 

There was one major step forward recently. A committee in the U.S. Senate passed a bill that would replace Fannie and Freddie with a new approach to supporting mortgage securitization.  The bill, sponsored by Tim Johnson, D-S.D., and Sen. Mike Crapo, R-Idaho, also would help to create affordable rental housing. The bad news is, it won’t even come to a vote in the Senate or the House.

A solid bipartisan plan to fix the broken mortgage credit system has been put forth by the Bipartisan Policy Center. You can read about it here.

With every seat in the House of Representatives and much of the Senate up for election in November, it’s time for Americans to tell candidates and incumbents that housing matters.  Congress needs to understand that the new credit crunch is every bit as bad as the recent housing credit bubble.  

Shashaty, former publisher of Affordable Housing Finance, is president of the nonprofit Partnership for Sustainable Communities and author of the book Rebuilding a Dream: America’s new urban crisis, the housing cost explosion, and how we can reinvent the American dream for all.  For info, go to www.p4sc.org