Interest Rates

Freddie Mac's widely watched survey of the mortgage market provided homeowners and would-be home buyers with another round of good news Thursday: A third straight week of falling interest rates has taken the average rate on 30-year fixed-rate home loans below 5% again. According to Freddie Mac, the rate on that standard mortgage averaged 4.99% this week, down from 5.06% last week and 5.16% a year ago. Borrowers paid on average 0.7% of the loan amount in upfront lender fees.

Even in the best of times, carrying a balance on your credit card is a risky -- and costly -- proposition. These days, it can be downright foolish, at least if there's a chance you might miss a payment or two. Millions of cardholders have recently received letters from the likes of Citibank, Bank of America Corp., Wells Fargo & Co. and American Express Co. notifying them that their interest rates are going up, in some cases to 30% if a single payment is missed. JPMorgan Chase & Co.

Banks are quietly changing the terms of millions of credit card accounts as they brace for a tough new law that will limit rate hikes. The law would restrict interest rate increases unless a credit card has a variable rate. So at least two major lenders are switching their cards with fixed rates to -- you guessed it -- variable rates. "It's completely unfair," said Linda Sherry, a spokeswoman for Consumer Action. "It's an end run around the intent of the new law."

Refinancing today is not the same game it was a few years ago, when homeowners with even a modest amount of equity and just so-so credit could score a great loan. You now need good credit, lots of equity and very little outside debt. "These are very traditional lending standards, but they're going to come as a shock to anybody who has only been in the market for the past 10 years," said Keith Gumbinger, vice president of HSH Associates, a Pompton Plains, N.J., publisher of loan information.

Like many recent college grads, Los Angeles resident Steven Lee finds himself unemployed in one of the roughest job markets in decades and saddled with a big pile of debt. He owes about $84,000 in student loans for undergrad and grad-school costs. But what Lee's angry about isn't the slings and arrows of an outrageous economy, and it isn't the idea that he owes a ton of money for all the learning he's received. It's the interest rates on his government-backed student loans, which range from 6.8% to a whopping 8.5%.

After reading my Sunday column on how banks are jacking up credit card rates, Santa Clarita resident Hank Lee wanted to know why usury laws weren't keeping interest rates at reasonable levels. "How much is enough?" Lee asked me. "Is 'compassionate capitalism' such an oxymoron?" My knee-jerk reaction was to say yes. But let's take a closer look. First, a defining of terms.

By introducing a certificate of deposit with interest rates tied to gold prices, Wells Fargo last week became the first California bank and the second nationwide to offer a savings account linked to stocks or precious metals. Such innovative accounts are a new attack by banks on the decades-old wall separating the banking and securities businesses, some observers say.

Low-income taxpayers, attracted by the promise of fast cash, are being lured into transactions that could drastically cut into their tax-refund checks, consumer advocates say. At issue is the practice of coupling refund anticipation loans--high-interest, short-term loans secured by income tax refunds--with high-cost, check-cashing services. The combination--available at many locations of tax preparer H&R Block Inc.--is popular with taxpayers who want to get their tax refund quickly.

After a month of intense pressure on banks and other mortgage servicers, the Obama administration on Friday reported improvement in its much-criticized program to reduce mortgage payments to stave off foreclosures. The number of temporary loan modifications that were made permanent had more than doubled to 66,465 as of Dec. 30, the Treasury Department said. In addition, 46,056 three-month trial mortgage modifications were approved and awaiting only the homeowner signatures before they were made permanent as well.

Fast-money lender CashCall Inc.-- known for TV ads featuring faded child star Gary Coleman talking about his financial problems -- agreed Monday to pay $1 million to settle state prosecutors' allegations that the company ran deceptive ads and used "loan shark tactics" to collect debt from customers. CashCall specializes in making loans in as little as one day with only a signature needed to get cash. But the Anaheim company charges most customers extremely high interest rates while advertising that its rates are low, according to a civil complaint filed by the California attorney general's office.

In crisis there usually is opportunity. Now, here's the opportunity if the latest global financial-market upheaval worsens: The U.S. government, still the borrower that never lacks for lenders, can launch a major economic-stimulus plan to be financed by yet more sales of Treasury securities. Frightened global investors would again be happy to shovel their money into Treasuries at low-single-digit interest rates. The U.S. would, in effect, then recycle those dollars back into the economy, preferably through business and personal tax cuts this time rather than another pork-barrel spending bill.

In the banking industry in 2009, the rich got richer -- which has, of course, infuriated much of the nation. But that same basic idea, mostly minus the public infuriation factor, is playing out across the business world. The Great Recession has killed untold numbers of small firms, many of which were unable to line up financing to keep their operations afloat. But money is no problem at all for corporate America. And the biggest businesses don't need banks, at least not for loans.

As Federal Reserve Chairman Ben S. Bernanke appeared to gain enough backing for confirmation to a second term, the central bank offered a more upbeat assessment of the economy than it did last month but still affirmed a pledge to keep interest rates near zero for "an extended period." For the first time in a year, however, the Fed rate-setting panel's statement, issued at the end of a two-day meeting Wednesday, came with a dissenting vote, which could presage an earlier-than-expected move to raise rates.

Applications for home loans fell nearly 11% last week despite low interest rates, with refinancing activity apparently running out of steam, the Mortgage Bankers Assn. said in a report Wednesday. Adjusted for seasonal factors, purchase-loan applications decreased 3.3% from the week before while refinancing applications fell 15.1%. This occurred despite no significant change in rates, according to the trade group. It calculated that the average rate was 5.02% for a 30-year fixed-rate loan, compared with 5% a week earlier.

It was the fat cats' fault before. But now it's becoming Obama's. With the unemployment rate stubbornly high, people were already shifting blame for their economic woes to President Obama one year into his presidency. Last week, investors joined them. For 10 months, the stock market climbed at breathtaking speed. But the Dow Jones industrial average suffered its worst week since dropping to a 12-year low in early March. It fell 552 points Wednesday through Friday, including 216 on Friday.

Freddie Mac's widely watched survey of the mortgage market provided homeowners and would-be home buyers with another round of good news Thursday: A third straight week of falling interest rates has taken the average rate on 30-year fixed-rate home loans below 5% again. According to Freddie Mac, the rate on that standard mortgage averaged 4.99% this week, down from 5.06% last week and 5.16% a year ago. Borrowers paid on average 0.7% of the loan amount in upfront lender fees.

Brutish winter weather drove housing starts in the U.S. down in December, but the South and the West fared better than the chillier Midwest and Northeast. December starts were at a seasonally adjusted annual rate of 557,000, a 4% decline from a revised November estimate of 580,000, the Commerce Department reported Wednesday. The figure was 0.2% above the December 2008 rate of 556,000. But another key indicator in the government data showed some signs of improvement for the construction industry.

After a month of intense pressure on banks and other mortgage servicers, the Obama administration on Friday reported improvement in its much-criticized program to reduce mortgage payments to stave off foreclosures. The number of temporary loan modifications that were made permanent had more than doubled to 66,465 as of Dec. 30, the Treasury Department said. In addition, 46,056 three-month trial mortgage modifications were approved and awaiting only the homeowner signatures before they were made permanent as well.

Despite growing worries about a future surge in inflation, consumer prices barely budged last month and fell for all of 2009 -- the first annual decline in more than half a century. The latest report on the consumer price index, released Friday by the Bureau of Labor Statistics, increases the likelihood that Federal Reserve officials at their next meeting later this month will stand pat on their policy of setting interest rates at near zero for "an extended period." In recent weeks, there have been increasing signs of a split at the Fed over how soon the central bank should begin tightening credit and monetary policy to avoid a future outbreak of inflation.

For mortgage applicants and home buyers, it's been a six-year wait, but the Federal Trade Commission and the Federal Reserve finally have come out with consumer credit protection rules first required by Congress in 2003. In late December, the two agencies published regulations designed to safeguard loan applicants from overcharges on interest rates caused by erroneous or outdated negative information in their national credit bureau files. The rules require lenders to alert consumers when derogatory credit data cause them to be charged higher rates and down payments or receive less than optimal terms on a "risk-based pricing" system.