08 Oct Chairman Bernanke, Meet Rural America. You Share a Problem.
Bet you never thought that those of us in rural and small town Americans would have something really big in common with former U.S. Federal Reserve Chairman Ben Bernanke. Think again.
Mr. Bernanke, according to the New York Times, recently applied to refinance his mortgage. He was denied. This is a man who commands $250,000 per speech and has a book deal for over $1M! So why is he having trouble refinancing? And what does this have to do with rural and small town America?
Mr. Bernanke was denied a mortgage because he’d recently changed jobs. Not because he had bad credit or his earning potential had decreased, but because he’d left a job; just like so many of us in the real world do. Evidently, as mortgages become more “automated” – based on formulas tied to credit scores and employment histories – the less the analysis reflects the realities of rural and small town life and employment.
Across America, folks from rural and small town America are being routinely denied credit because they don’t fit the formulas built by the DC rule makers. There, almost every resident has a long term job and can easily meet the new automated requirements. I know this, because we moved to MT from DC and trust me; there are way more people in DC with long term, verifiable jobs than people in most other parts of the country, particularly in remote communities.
In many rural and small towns, employment is seasonal; residents are self-employed or work multiple jobs, often changing jobs pretty regularly. In other words, rural and small town employment histories don’t frequently meet the new guidelines. This is creating a credit market for rural and small town residents that is, at best a competitive disadvantage; at worst a severe enough problem to directly affect our economies and potentially lower the values of our homes compared to our urban and suburban neighbors.
This has to stop. If we care about economic growth, we must care about credit availability. And, when rules are promulgated that don’t recognize the unique lifestyles and employment practices of rural and small town Americans, our communities suffer.
According to the New York Times, “(T)he old school model of what it means to apply for a mortgage – go down to your local bank and have a loan officer meet with you and try to judge whether you are likely to repay the mortgage – is very much a thing of the past.”
Small business lending, a big deal for rural and small town America, has been in decline for a while. Now, as a result of these rule changes, lots of us can’t get mortgages either. Guess what that looks like over time? Local banks suffer since they can’t make money from common sense lending, real estate markets decline as new buyers have a tougher time qualifying, and communities decline as residents are forced to depart for “real jobs” located elsewhere.
No one wants to return to the practices that resulted in the housing bubble and its accompanying bust, but solutions that ignore the lifestyles of almost 90 million Americans are destined to have bad outcomes. We can do this better. If we don’t, well, the consequences could be pretty scary.