Standard & Poor’s downgrade of the United States credit rating Friday, followed closely by a downgrading of both Fannie Mae and Freddie Mac on Monday may impact mortgage interest rates.
Chad Engler, branch lending manager for TCF Bank on North Academy Boulevard, said interest rates actually fell in response to recent events and are likely to stay at record lows for a month or so before they respond to the downgraded credit rating.
Standard & poor’s reduce the US, Fannie Mae and Freddie Mac to a AA+ rating from AAA, which means the government and its lending arms are not as safe and reliable an investment they used to be.
The downgrade sent consumers to their stock borkers, however, and as people sold off their shares, they bought treasury bonds, sending rates lower.
Engler said mortgage rates for Federal Housing Authority loans, which are backed by Fannie and Freddie, are at about 4 percent right now.
Those loan rates can float up and down in the course of a day, though borrowers can lock the rate in, Engler said. They fluctuate more as they’re typically based on two- to five-year bonds.
Conventional mortgage rates, which are traditionally based on more stable 10-year bond rates, fell just one tenth of a percentage point, Engler said. The drop is practically inperceptable to the average homebuyer.
While news in the short term is mostly good for perspective homebuyers, rates will likely rise as the impact of the credit downgrading is felt in the treasury bond, Engler said.
Fannie Mae and Freddie Mac will almost certainly be impacted by their downgraded credit rating, though not likely for another 30 to 45 days, Engler said. So buyers who have already started the process will probably be safe. But long term, Engler said he anticipates rising fees and new regulations on FHA loans.
He said he expects smaller banks, like TCF, that loan their own money and maintain their own mortgage portfolios will likely gain market share as mortgage-backed securities become harder to trade as a result of Freddie Mac and Fannie Mae’s downgraded credit rating.