Fannie may weather a downgrade better than others
Share Now on:
Steve Chiotakis: You can bet those GDP figures are rippling all through Washington at the moment where there is still no deal to raise the debt ceiling. Talk about uncertainty. The U.S. could default and its credit rating could be downgraded if we don’t get a deal by early next week but some markets are still shrugging all of that going on — off. Such as mortgage bonds backed by Fannie Mae and Freddie Mac bonds.
Marketplace’s Heidi Moore explains.
Heidi Moore: We all remember that bad mortgage bonds kicked off the economic collapse; the government even officially took over Fannie Mae and Freddie Mac during the crisis. So those Fannie and Freddie mortgage bonds, which are backed by our struggling government, may seem like something out of a zombie nightmare movie- two monsters in one.
But actually, those mortgage bonds from Fannie and Freddie may be one of the few parts of the market that keep their cool if and when the U.S. is downgraded.
Bose George, a mortgage analyst with Keefe Bruyette & Woods, says mortgage bonds that are backed by the government are basically as safe as bonds from the U.S. Treasury. So if Treasury bonds get downgraded to a double-A rating, every other bond will get graded on the same curve.
Bose George: When you have such a big market being downgraded, it basically just changes the world and we readjust and triple-A becomes the new normal. So, collectively we’re all going down.
And yes, that’s the bright side. About 80% of all new mortgages flow through the government through Fannie Mae and Freddie Mac. But what about the rest of the mortgage market? Housing is still lagging behind the rest of the recovery. This debt ceiling crisis certainly won’t help that.
In New York, I’m Heidi Moore for Marketplace.
As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.
Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.
Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.
Cheers to trustworthy journalism!
Give just $7/month to get your own KaiPA glass.