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3 On Your Side: What The Rating Downgrade Means For The Housing Market

jim-donovan-web Jim Donovan
Jim Donovan is a 13-time Emmy Award-winning consumer reporter w...
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Jim Donovan reports…

PHILADELPHIA (CBS) – In addition to Standard and Poor’s cutting the AAA rating of the United States this week, it also cut the rating of government-backed mortgage brokers Fannie Mae and Freddie Mac. They too have now have gone from AA to AA+. 3 On Your Side Consumer Reporter Jim Donovan shares information on how this move may affect the already shaky housing market.

Fannie Mae and Freddie Mac are private companies that receive federal financing and either own or guarantee half of all mortgage loans in the United States—some 31 million homes. Standard & Poor’s says it downgraded Fannie Mae and Freddie Mac from AAA to AA+ to reflect their direct reliance on the U.S. government.

So what impact will this downgrade have on real estate?

Lawrence Yun, and economist with the National Association of Realtors, says, “Certainly the downgrade could have negative impact effect in terms or rising interest rates and also you can damage consumer confidence and many people who are ready to enter the housing market may become more hesitant about entering.”

Interest rates have been at historic lows, but the downgrade could reverse that trend over time. If that happened, families with adjustable rate mortgages ready to re-set would have to pay more for their homes.

Another worry is that the downgrade could lead to a tightening of credit standards. Alex Pollock of the American Enterprise Institute says, “That makes it hard to even get a loan – even thought the rates may be very low, it’s hard to get a loan at all, and that retards recovery.”

So should consumer’s panic? Not necessarily. Some economists say if rates do go up, they don’t expect them to go up significantly, and that would be due to the fact that the housing market is already depressed.

Reported by Jim Donovan, CBS3

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