Dennis' Mortgage Blog

Your credit score is essentially a rating on your creditworthiness.  The credit bureaus who provide your credit score act as rating agencies as well as reporting agencies.  Their determination of your credit score determines if you will pay a higher rate for  your mortgage, auto loan or credit cards.

Standard and Poor’s is a credit rating agency for companies and their debt.  A rating from S&P, or its competitor Moody’s, can send a company’s debt costs considerably higher or lower as investors rely on S&P to do a lot of research and determine the risk of investing in the bonds or equity issued.

S&P does not just rate companies but sovereign nations as well.  The United States is a sovereign nation and it issues debt.  Debt in the form of U.S. Treasury bills and bonds that are used to finance government operations.  Currently the U.S. debt is $14.3 trillion and growing at about $100,000 every seven seconds. 

You have read and heard about the recent budget dispute between the Republicans who control the House of Representatives, Democrats who have the majority in the Senate and President Obama.  The compromise reached supposedly shaved $38 billion in federal spending, spending that is over $3.5 trillion this year, or just over 1% less spending.

This morning Standard & Poor’s issued its outlook for investors interested in purchasing U.S. Treasury debt.  The outlook for decades has been “stable.”  The United States have never missed an interest payment on any debt it has issued nor purchased back bonds on their due date—that is pretty stable.

Today S&P changed its outlook for U.S. federal debt to “negative.”  Essentially S&P is telling investors that because of the spending, the outstanding debt and the political reality of our elected representatives in Washington adequately address the deficits and growing debt that they, S&P, have a negative outlook on the long term ability of the United States to meet all of its credit obligations.

Standard and Poor’s just issued what amounts to a 650 FICO score to President Obama and Congress.

On the news stocks plunged, the Dow at one point down 250 points before closing only down 140 points, or almost 1.5%.  Gold soared to a record high, again, now at $1497 an ounce—I feel for the young couple looking to buy marriage rings at these prices. 

Interesting as stocks dropped not only did gold benefit but so did Mortgage Backed Securities.  Perhaps investors read my blog post earlier this month “Mirror, Mirror On the Wall, Who’s the Fairest Bond of All” recognizing the strength of mortgages relative to U.S. Treasuries in terms of yield versus risk.  Fannie Mae MBS closed at their highest level in three weeks.

By mid-May Congress must vote on whether to raise the debt ceiling, essentially the credit limit for how much the government can borrow.  If the debt ceiling is not increased then either the federal government must stop spending money immediately and pay the interest on its debts, or not pay its interest and be in default. 

One year ago Congress voted to raise the debt limit by $1.9 trillion.  One year ago.  One point nine trillion dollars.  At the time there was much talk about reducing spending to prevent increasing the debt ceiling again.

Much talk, little action.  The result? The outlook is “negative.”

To see government debt and spending in real time go to the U.S. Debt Clock.

Mortgage rates continue to remain low for the time being.  Call or email Dennis today to determine your purchasing power for a new home loan or monthly savings from a refinance.  Direct dial 562-472-1118