KeNo's Housing and Economic Portal: Thursday August 12 Housing and Economic stories

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TOP STORIES:

An August Surprise from Obama? - (www.reuters.com) Yes, another government idea to have taxpayers - including those that don't own homes - pay for everyone to get a 4.5% interest rate loan.

Is it time for another “free” lunch? One Wall Street idea to boost U.S. growth is for the government to loosen rules so millions more Americans can refinance mortgages, thereby freeing up cash for spending. A desperate Washington might be tempted, but should think twice. It’s too reminiscent of how the economy first fell into trouble. A top Morgan Stanley economist ran the “slam dunk stimulus” plan past the Senate Budget Committee on Tuesday. With the political mood making it almost impossible to contemplate spending more taxpayer money to juice demand, the bank’s economists are suggesting a different route to a stimulus — namely having government-run mortgage lenders loosen the refinancing rules on 37 million mortgages they currently guarantee. That would open the door to many homeowners who haven’t been able to take advantage of the current low interest rates because they owe more than their homes are worth, are unemployed or have low credit scores. The logic is that with the government already on the hook for these loans, there’s nothing to lose from dispensing with any creditworthiness criteria for refinancing. The median interest rate on the mortgages concerned is 5.75 percent. These loans, the thinking goes, could be refinanced to around 4.50 percent. The 125 basis-point reduction would leave a borrower with a typical $200,000 mortgage better off to the tune of $2,500 a year. If, as Morgan Stanley guesstimates, half the affected homeowners took advantage of this, they would collectively have an extra $46 billion a year burning a hole in their pockets.

SBA Program Proves a Hit, but Now It Is in Limbo - (online.wsj.com) Pinnacle Bank made just two loans through the Small Business Administration in 2007 and 2008. So far this year, the Orange City, Fla., bank's total is nine, to borrowers from an auto dealer to a computer-equipment wholesaler to a bakery. "The SBA program is the only way we can continue to lend right now," says David Bridgeman, president of Pinnacle, which has two branches and assets of $213 million, including about 600 loans. For many of the $3.4 million in loans Pinnacle made through the SBA in 2010, the bank has to set aside capital against only the 10% slice that isn't guaranteed by the U.S. government. Access thousands of business sources not available on the free web. Across the nation, many banks have turned to the SBA's so-called 7(a) program to help unfreeze credit. Nearly 3,000 lenders have made 7(a) loans in the current fiscal year, up 21% from 2008. The 7(a) program, the SBA's largest loan program, is hardly a cure for the credit shortage affecting many borrowers. The agency is involved in less than 10% of all small-business loans, and some banks won't participate because of red tape. Lenders must follow the SBA's rules when making 7(a) loans, which can be used for working capital, fixed assets and other business expenses. The term of the loan can be as long as 25 years.

UN urges calm as wheat hits two-year high - (www.ft.com) Wheat prices surged more than 7 per cent on Wednesday to a fresh two-year high even as the United Nations attempted to quell growing panic in the markets. CBOT September wheat rose to a fresh peak above $7.30 a bushel, the highest since September 2008, amid rising alarm over the state of the wheat crop in the Black Sea region, which has been ravaged by the worst drought in more than a century. The UN’s Food and Agricultural Organisation said that fears of a repetition of the 2007-08 food crisis were unjustified. But it also cut its forecast for global wheat production by 25m tonnes to 651m tonnes, making the biggest revision in 20 years, and warned that a continuation of the current weather conditions could affect planting of the next Russian crop, with “potentially serious implications” for global wheat supplies in the 2011-12 season. Nonetheless, the FAO said two years of record crops had replenished global inventories sufficiently to cope with lower production this year. “The world wheat market remains far more balanced than at the time of the world food crisis in 2007-08 and fears of a new global food crisis are not justified at this point,” the agency said.

Russia to Ban Grain Exports From Aug. 15 to Dec. 31 - (www.bloomberg.com) Russia, the world’s third-biggest grower of wheat, banned grain exports from Aug. 15 to Dec. 31 as the country’s worst drought in half a century cuts yields. Prime Minister Vladimir Putin said today that the ban is “appropriate” to contain domestic prices that gained 19 percent last week, after drought and record heat in central Russia and along the Volga River forced the government to declare a state of emergency in 28 crop-producing regions. He proposed that Kazakhstan and Belarus, Russia’s partners in a customs union, join the ban. “As of today, Russia has no grain market,” said Kirill Podolsky, chief executive officer of Valars Group, the country’s third-biggest grain trader. “This will be a catastrophe for farmers and exporters alike.” Wheat extended a rally to the highest price in 23 months on Putin’s order to halt exports of wheat, maslin, barley, rye, corn and flour. Corn and rice also surged.

Europe Junk Spreads Poised to Drop Below U.S.: Credit Markets - (www.bloomberg.com) Relative yields on Europe’s junk bonds are poised to fall below their U.S. counterparts for the first time since June 2008 as concern the sovereign deficit crisis will derail the region’s economic recovery recedes. The extra yield investors demand to hold speculative-grade corporate bonds issued by European companies instead of benchmark government debt has declined to 656 basis points, or 6.56 percentage points, compared with 649 basis points in the U.S., according to Bank of America Merrill Lynch indexes. The 7 basis-point gap is down from 131 basis points on June 15. Yield spreads shrinking faster in Europe than in the U.S. underscore optimism that Greece is bringing spending under control, allowing it to receive the second part of a 110 billion-euro ($145 billion) bailout this week. Economists forecast that a report tomorrow will show U.S. payrolls fell for a second month, adding to evidence the world’s largest economy is sputtering.

OTHER STORIES:

Mortgage rates hit low of 4.49 pct. - (news.yahoo.com/s/ap)

Dollar Funded Carry Trades Outperform Yen, Franc on Fed Outlook - (www.bloomberg.com)

NYC Boosts Build America Bond Sale 31% as AAA Debt Lures Buyers - (www.bloomberg.com)

China Central Bank Sees Inflation Risks as Economy Stabilizes - (www.bloomberg.com)

Greece Gets Good Progress Report From Lenders - (www.nytimes.com)

Trichet May Start ECB’s Second Run at Exit Strategy - (www.bloomberg.com)

China Tests Said to Check Risk of Cash Crunch Among Developers - (www.bloomberg.com)

Greece Likely to Get Aid Payout on Austerity Progress, IMF Says - (www.bloomberg.com)

2 Top Economists Differ Sharply on Risk of Deflation - (www.nytimes.com)

Jobless Claims in U.S. Increase to Three-Month High - (www.bloomberg.com)

Sales Were Sluggish in July for Retailers - (www.nytimes.com)