Standard & Poor’s downgraded the United States debt from AAA to AA+ as well as downgraded Fannie Mae and Freddie Mac, on Friday. Because Fannie and Freddie were placed under the U.S. government in 2008, they are extremely affected by economic volatility. The debt downgrade rating prompted investors to get rid of their shares of U.S. Stocks on Monday.
In a more normal economic climate, these moves would result in an increase in mortgage rates, according to many experts in the field. But, because investors don’t have much choice when it comes to Fannie and Freddie debt or U.S treasuries – the actual result is lower mortgage rates. Publisher of the Inside Mortgage Finance Publications, Guy Cecala, stated that mortgage rates are tied to Treasuries’ yields – which means they are very likely to stay in the historical low rates for awhile.
“Such actions could lead to major disruptions in the mortgage market and to our business due to lower liquidity, higher borrowing costs, lower asset values and higher credit losses.”
Freddie Mac reported a loss and requested additional aid from the government of $1.5 billion.
While the mortgage industry is blaming the credit downgrade, Weiss Research’s Michael D. Larson, a housing and interest rate analyst, says that it’s actually the continuing weak economy preventing people from buying homes. There is little confidence in the economy, and many people are unemployed. He says it’s not a rate-driven issue that’s causing the sluggish housing market – it’s the plunging stock market and ongoing recession.
Despite all the talk of a sluggish housing market and concern over the credit rating downgrade, some people are taking advantage of the historically low mortgage rates. LendingTree.com announced Monday that they had one of their most active days for home loan applications over the weekend – with many applications being for mortgage refinancing as people look to benefit from the interest rates.