Loans Expert

Leveraged loans are outperforming high-yield, high-risk bonds in the U.S. after lagging behind the last four years as the Federal Reserve takes steps to withdraw the unprecedented amount of cash it pumped into the economy.

Speculative-grade loans gained 1.91 percent this year through Feb. 19, according to Standard & Poor’s. That compares with 1.137 percent for junk bonds, Bank of America Merrill Lynch’s U.S. High Yield Master II index shows. Higher benchmark borrowing costs tend to increase rates on loans, which are adjustable, boosting returns.

Delinquency and foreclosure rates among US homeowners climbed to their highest levels on record in the fourth quarter of last year, as the Obama administration unveiled its latest effort to aid the housing market.

The Mortgage Bankers Association said 15 per cent of all home loans were either in foreclosure or late on a payment, the highest proportion since its surveys began in 1972.

The data were released as President Barack Obama announced $1.5bn (€1.1bn, £970m) in support for housing finance agencies in the states worst-hit by the housing crisis – Nevada, Arizona, California, Florida and Michigan. All have seen falls of more than 20 per cent in house prices.

The Federal Reserve’s decision to raise the interest rate it charges on short-term loans to banks reverberated in the financial markets Friday, sending overseas stock indexes lower and giving fresh momentum to a recent rise in the dollar.

The Fed took the move to normalize lending after holding interest rates to extraordinary lows for more than a year to prop up the financial system. But the move, announced after the close of U.S. equities markets, sent Asian stocks lower, with the Nikkei 225 index in Tokyo dropping over 2 percent, and both the Kospi index in Seoul and the Hong Kong’s Hang Seng indexes showing similar declines, The New York Times’s Sewell Chan and Bettina Wassener reported.

Rates for 30-year home loans edged lower for the second straight week, a report said Thursday, but remained above last year’s record lows.

The average rate on a 30-year fixed rate mortgage was 4.93 percent this week, down from 4.97 percent a week earlier, mortgage finance company Freddie Mac said.

Rates dropped to a record low of 4.71 percent in early December, pushed down by an aggressive government campaign to reduce consumers’ borrowing costs.

Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day, often in line with long-term Treasury bonds.

It’s probably easier today to accomplish a bad credit mortgage refinance loans than it was just several months ago. Rates are certainly better. The key is to be very careful in how you go about approaching a mortgage refinancing loan with bad credit. If you have negative information on your credit score, now is the time to address it. Start paying off smaller past due bills and pay attention to your monthly payments to be sure they are paid by the due date, don’t have errors and that the amounts owed are correct. If nothing else, a mortgage refinancing can train you to get into these good habits.

Homeowners who refinanced during the fourth quarter “overwhelmingly” chose fixed-rate loans, regardless of whether their original loan had a fixed or adjusted rate, and shorter-term mortgages gained some favor, Freddie Mac (FRE) said.

More than 95% of refinanced loans during the quarter were fixed-rate, as interest rates on such mortgages fell to record lows in the 39-year history of Freddie’s Primary Mortgage Survey.

Thirty-year loans are still the preference for new mortgages, but Freddie Chief Economist Frank Nothaft noted that “many borrowers” are choosing shorter- term mortgages–15 or 20 years–instead of 30 as they look to pay down their balances faster. Since the global recession hit, consumers have paid down debt in general at higher-than-usual rates.

The once popular adjustable-rate mortgage has fallen out of favor with borrowers, and more homeowners are working faster to whittle down their mortgage debt.

A quarterly Freddie Mac report on refinancing activity showed fixed-rate loans were overwhelmingly preferred by borrowers, with 95 percent of all refinancings being a fixed-rate product. Freddie Mac said a fixed-rate loan was the preferred choice, regardless of whether the borrower’s original loan was an ARM or fixed.

“The lowest fixed-interest rates in more than a generation, coupled with the comfort that a constant monthly principal and interest payment provides the homeowner, are important drivers in fixed-rate product choice,” said Freddie Mac chief economist Frank Nothaft.

The government-controlled mortgage giants Fannie Mae and Freddie Mac said they would buy back troubled loans backing securities sold to investors.

Education Secretary Arne Duncan on Tuesday urged the Senate to overhaul student lending, asserting that the banking industry has had “a free ride from taxpayers for too long” and that executives with lending giant Sallie Mae have enriched themselves as borrowers rack up college debt.

“Working Americans pay while bankers get rich,” Duncan said in a prepared statement. “Sallie Mae executives have paid themselves hundreds of millions of dollars in the last decade while teachers, nurses, and scientists — the backbone of the new economy — face crushing debt because of runaway college tuition costs.”

Treasury Secretary Timothy Geithner says the U.S. government “will never” lose its sterling credit rating despite big budget deficits and a newly increased debt limit that now tops $14 trillion.

Geithner says in an interview broadcast Sunday that in times of economic crisis, international investors will continue to buy U.S. Treasury bonds because the bonds are a safe investment.