Loans Expert

Rates for 30-year home loans surged last week, rising to the highest level in eight months due to the improving economy and the end of a government push to keep rates low.

The average rate on a 30-year fixed rate mortgage was 5.21 percent this week, up from 5.08 percent a week earlier, Freddie Mac said Thursday. That’s the highest since mid-August, when the average rate was 5.29 percent.

Rates had dropped to a record low of 4.71 percent in December, pushed down by a campaign by the Federal Reserve to reduce borrowing costs for consumers. The program ended last week, but the Fed left the door open to reviving the program if the economy weakens.

The rate at which households and businesses defaulted on loans has been lower than expected in the first three months of this year, according to the Bank of England.

The Bank’s credit conditions survey for the first quarter of 2010 found that lenders reported that defaults on unsecured lending to households had fallen markedly over the past three months and by more than had been expected. Moreover, lenders expect that trend to continue over the coming three months.

But losses given default – the amount of loss a bank sustains each time a person defaults – had risen over the past three months and that trend, too, is expected to continue.

President Obama said today an overlooked part of the new health care law will help Americans get a college education by lowering the costs of student loans.

Under the new rules, the government will lend money directly to college students, without the involvement of banks as the “unnecessary middlemen” in what Obama called a “sweetheart deal” that provided that with billions in interest.

“Those were billions of dollars that could have been spent helping more of our students attend and complete college,” Obama said to an appreciative audience at a community college in Alexandria, Va., just across the river from Washington, D.C.

The U.S. Department of Agriculture’s Rural Development office serving Arkansas has approximately $58 million available in its business and industry guaranteed loan program to utilize before September 30, 2010.

The program provides guarantees on loans made by lending institutions to assist businesses in purchasing and developing land and buildings, purchasing machinery, equipment, or supplies, and to provide working capital. Debt refinancing that improves cash flow for the business is also eligible. Creating new employment and retaining existing jobs in rural areas is the primary goal of the program.

U.S. mortgage applications fell for a second straight week, with demand for home loan refinancing sinking to its lowest level in a month as interest rates jumped, data from an industry group showed on Wednesday.

Demand for purchase loans, a tentative early indicator of home sales, edged higher, but activity was down from a year earlier, further evidence that the housing market has hit a lull after showing signs of a recovery late last year.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended March 19, decreased 4.2 percent.

The passage of the Health Care and Education Affordability Act by the U.S. House of Representatives on Sunday could reduce costs for Yale students and the Financial Aid Office, Caesar Storlazzi, director of Student Financial Services, said Monday.

The new bill, which the Senate is expected to pass by the end of the week, would invest $61 billion in Pell Grant scholarships for low-income students and other college aid programs. Under the legislation — an amended compromise on the originally proposed Student Aid and Fiscal Responsibility Act that since stalled — all colleges and universities would be required to convert to a program that loans students money directly from the federal government rather than private loan providers.

The Federal Reserve must reveal documents identifying companies that received Fed loans to survive the financial crisis, an appeals court ruled Friday.

A panel of the 2nd U.S. Circuit Court of Appeals in Manhattan said in two opinions that such information isn’t automatically exempt from requests under the Freedom of Information Act.

The Fed argued that if it identified banks that drew emergency loans, it could cause a run on those institutions, undermine the loan programs and hurt the economy, and lower-court judges were split on the issue.

“We are reviewing the decision and considering our options for reconsideration or appeal,” said Fed spokeswoman Michelle Smith.

Nine of the largest banks to receive money through the government’s $700 billion financial market rescue program cut back lending to small businesses in January, the Dow Jones Newswire reports.

The total volume of small-business loans outstanding at the banks fell 1% in January, the U.S. Treasury said in a report released late Monday. New loan originations for small businesses dropped 28%.

Meanwhile, total average loan balances at the institutions rose 2% to $1.064 trillion in January. Overall new loan originations were down 35%.

The Treasury attributes much of January’s fall in overall originations to sharply higher new lending activity in the previous two months.

The nine top U.S. banks that received government rescue funds in January made the fewest amount of new loans since October, government data showed on Monday.

Loan originations at the nine top banks that received bailout money from the Troubled Asset Relief Program fell to $35.9 billion in January, down $19.3 billion from December levels, Treasury said in its monthly TARP lending survey of the top banks.

It was the smallest amount since October when they hit $41.6 billion. October was the last month that new loans had fallen.

Rising home prices and an improving economy are expected to spark a modest rebound this year in home equity lending. But lenders and homeowners will be more cautious about converting their equity to cash, muting any boost to the economy, said Greg McBride, a senior financial analyst.

“Home equity borrowing won’t be the economic crutch it was a few years ago,’’ said McBride.

As borrowers tap into the value of their properties, lenders will make about $36 billion in new home equity loans in the next 12 months, according to a forecast by Moody’s Economy.com in West Chester, Pa. That will increase the outstanding balances of the loans by 4.2 percent to $903.5 billion from a two-year low of $867.3 billion this quarter.