Mortgages and the Downgrade of U.S. Credit
News reporters across the world delivered the jaw dropping news: America’s credit has been downgraded. How could something like this have happened to one of the richest countries in the world?
It was predicted by those in the know that downgrading the U.S. credit rating would lead to higher mortgage rates. The reason is that U.S. bonds may no longer be attractive to investors. As the sale of bonds drop, its price goes down and mortgage rates rise. home refinance rates details and rates can be found at Gmac mortgage.
The next obvious question is, why would investors want to buy bonds from a country that has had its credit rating dropped? The not so obvious answer is that people are getting pounded in the stock market and so they are desperately looking for a safe investment. Believe it or not, U.S. treasury bonds are a safe investment.
Buying debt is actually attractive to many investors; especially American debt. One reason is that the U.S. has so much debt compared to other countries around the world who are operating with debts.
Moreover, countries that have debt now have even lower credit ratings than the United States. China, with all its talk about how the U.S. should get it financial house in order, has a lower credit rating than the U.S.
What about Freddie Mac and Fannie Mae? The federal government rescued Freddie Mac and Fannie Mae along with other Wall Street businesses during the Wall Street Meltdown in 2008. The U.S. government has been funding the institutions.
Moreover, Freddie Mac and Fannie Mae own about half of all U.S. mortgages, and just about all the new mortgages. The thinking goes that these two companies will not be able to pay their bills since their primary backer can’t pay its bills either.
So the S&P lashed out at Freddie and Fannie along with other institutions linked to U.S. debt. It’s not just the government that was affected; over thirty major companies in the U.S also felt the blow as their credit was downgraded too.
Some experts claim that interest rates will not be affected. However, it may be more difficult for consumers to obtain a mortgage home loan as a result of stricter criteria issued out by the banks.
Even the stock market has been significantly affected by the credit rating. The Dow Jones Industrials went down by over six hundred points on Monday, August 8. That’s 5.5 percent of the DJI. Stock in the Fannie Mae and Freddie Mac companies are not worth much anymore. mortgge refinancing services are offered by Gmac mortgage.
America has never experienced a downgrade before, so only time will tell how this fiasco will play out.
fixed rate refinance information and details can be found at Gmac.