Mortgage News

A bill that helps home buyers afford energy improvements and encourages banks to offer a discount on loans to pay for reducing energy usage passed the U.S. House in June and could pass the Senate in the fall. The American Clean Energy and Security Act of 2009 requires Fannie Mae and Freddie Mac to offer discounts on home loans that include monetary incentives for making a home more energy efficient. These discounts, which are already in effect at some lenders like J.P. Morgan Chase & Co. and Bank of America, include savings on closing costs for homes that have Energy Star appliances. The Federal Housing Administration is offering a plan through its approved lenders that allows borrowers to add the cost of making efficiency improvements into the loan, but the extra money doesn’t count toward determining how much loan a borrower can qualify for. For instance, a borrower who adds $5,000 to a $100,000 loan to afford new Energy Star appliances would only have to qualify for $100,000 – not $105,000. Source: The Wall Street Journal

Recent data illustrating steady home prices and rising sales for weeks have led economists and analysts alike to indicate a perceived bottom, or stabilization, in the US housing market. New market analysis out of Credit Suisse suggests the US residential housing sector may be past the point of stabilization and is now recovering vital signs. Demand is returning on higher affordability and the federal first-time homebuyer tax credit, according to Martin Bernhard, of Credit Suisse’s private banking, investment services and products divisions. “On a national level, we think that the turning point could have been reached,” he said. But several factors including unemployment rates and foreclosure levels may pressure these positive developments, Bernhard said in market commentary last week. New house supply is low as housing construction slips. The existing house side of the market, which is about 10 times as large as the market for new homes, according to Credit Suisse, remains pressured by levels of foreclosure inventory. The risks posed by the foreclosure pipeline may pressure prices in the short term, but the pricing correction achieved poses long-term investment benefits. “Given the sharp correction in house prices over the last three years, we think that there now exist interesting investment opportunities in the US housing sector,” Bernhard said. Source: HousingWire

There are many warning signals with regard to rough waters ahead. Last week we spoke about the danger of a double-dip or at the least a very uneven recovery. But even a robust recovery does not come without dangers. The stronger the recovery, the stronger the risk of inflation. There is no doubt that the amount of money the government is borrowing to both stimulate the economy and make up lost revenue due to the slumping economy brings long-term economic risks. A strong recovery will actually serve to lower the deficit but we still will be paying the bills for years to come. The lower dollar and higher price of gold represents recognition of this fact. With gold crossing the all-important psychological $1,000 barrier this week, the markets seem to be recognizing the dangers of inflation ahead.

In a scenario of a strong recovery, inflation could reign and that should translate into much higher rates. The good news? Well, believe it or not, the good news is actually the bad news from our discussion last week. The recovery is not expected to be strong. We may be able to tolerate the deficits in the short-run because we will not have strong private demand for borrowing. Even the scenario of a stronger recovery and higher rates could serve to slow borrowing and thus the recovery. Therefore, a weak and slow recovery could be the best news we could have. As long as it does not revert to a dip back into recession.