Stocks dropped worldwide in response to the announcement that America’s credit rating has been dropped by S&P. America’s credit has been AAA for a long time now, meaning that its credit worthiness has always been top notch and of the highest grade. This is the first time that something like this has ever occurred. Experts have been debating the economic implications of the news. However, Fitch and Moody maintained a AAA rating for the U.S One possibility of this downgrade is that that mortgages rates will be higher. The assumption is that investors will less likely to buy American bonds but that hasn’t been the case. Plenty of bonds are still being purchased.

The reason for this is that bonds are still considered a pretty safe investment overall. It is actually considered one of the safest investments in the world. 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.

America has never experienced anything like this before so one is really certain about the future. No one can really predict how this will play out in the end. Many analysts say that when the stock market settles down, the investors will flock to it causing a drop in price of the bonds and the rise of interest rates.

The U.S. government has been funding Freddie Mac and Fannie Mae and as a result they have also been severely impacted. A large percentage of American mortgages are owned by these two companies. It is only natural that they have been affected since their backer (the government) has also been affected. As a result, these companies along with many others also had their credit downgraded. It is quite plausible that this situation may not affect interest rates. It will be even more difficult for consumers to qualify for a home mortgage.

Even the stock market has been affected as well. The Dow Jones Industrials declined 634 points on Monday, August 8. That’s 5.5 percent of the DJI. The price of Fannie Mae and Freddie Mac stock has declined quite rapidly. The U.S treasury and government has responded that there are major flaws and errors in S&P’s calculations, one by a $2 trillion margin. Some analysts feel that this greatly reduces the validity of S&P’s claims.

Earnings report were released by Freddie Mac just as the price of stock went down. It said that the downgrade could mean a reduction in the supply of mortgages. The worst case scenario would mean a higher number of foreclosures in the nation. We are only in the early days since this announcement. Will rates go up or down? Will the entire economy be affected? Will our nation go into another depression? Only time can answer these questions.

Author Bio: Written by Seton Walker : Gmac mortgage offers Home Loans and easy access to competitive mortgage refinance. Utilize our mortgage calculators for real estate and mortgage calculations.

Category: Real Estate
Keywords: credit downgrade, u.s credit downgrade, credit downgrade interest rates, mortgages