TEAM EMPOWERMENT MORTGAGE CHATTER: August 8; News & Headlines; Will the S&P Downgrade Affect Interest Rates?; More Homeowners Get Loan Modification Help; Youth Generation Hit Hard By Recession

“Without a struggle, there can be no progress” -Frederick Douglass


 S&P: United States of America Long-Term Rating Lowered To ‘AA+’ On Political Risks And Rising Debt Burden; Outlook Negative: Text of S&P press release: ” We have also removed both the short- and long-term ratings from CreditWatch negative. · The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics. More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011. Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon. The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.”

Stocks Fall, Treasuries Rally on U.S. Rating. Bonds were higher overnight as equity markets take another bath on reaction to S&P’s downgrade of the U.S. AAA rating late Friday (to AA+). Initially the market did get hit when it first started trading in Tokyo, but the equity losses have been sharp enough to help bonds rally. The benchmark 10-year UST note yield fell to 2.41%, the lowest level since October, and the 2yr UST yield hit a fresh record low of 0.232%. The price move underlines the dilemma confronting investors: there are few alternative safe-haven assets out there that can match the depth and liquidity of the Treasury market, with over $9.3 trillion in debt outstanding. The US Debt downgrade from triple-A to double A-plus by Standard and Poor’s isn’t a big surprise to investors as the rating firm has signaled such a move in recent weeks. Yet the decision late Friday evening came following the biggest weekly selloff in U.S. stocks since the 2008 financial crisis. Fears about the U.S. economy faltering further and the euro-zone debt crisis have spooked investors’ sentiment and increased worries that the downgrade could further undermine confidence by U.S. consumers to spend and businesses to expand, increasing anxiety and outlook for the global economy.

Global Economy Near Tipping Point as Markets Eye FOMC Meeting. Tuesday’s monetary policy meeting by the Federal Reserve may provide further stimulus even though the options are running thin at the moment. One way for the Fed to provide stimulus is to signal that the key policy rate will stay where it is longer than many thought. Interest rate futures indicate the first rate hike will come in the first half of 2012, pushed out from next year.

Fannie Mae, Freddie Mac Ratings Cut by S&P Amid Reliance on U.S. Backing. Standard & Poor’s lowered credit ratings for Fannie Mae, Freddie Mac, and other lenders backed by the federal government.




Standard & Poor downgraded the U.S.’s credit rating on Friday, despite Congress reaching a deal in the final hours on the debt ceiling crisis last week. And now many of your customers may be asking: What does this mean for interest rates?

“The impact on your wallet of the Standard & Poor’s downgrade of the nation’s credit rating is similar to what would happen if your own credit score declined: The cost of borrowing money is likely to go up,” the Washington Post explained in the aftermath of S&P’s decision.

S&P downgraded the U.S.’s top-notch AAA credit rating for the first time in history, moving it down one notch to AA+; the rating reflects a downgrade in S&P’s confidence in the U.S. government’s ability to repay its debts over time. It’s not clear, however, whether S&P’s downgrade will instantly effect rates, analysts say.

The 10-year Treasury note is considered the basis for all other interest rates. And “the downgrade could increase the yields on those bonds, forcing the government to spend more to borrow the same amount of money,” the Washington Post article notes. “Many consumer loans, such as mortgages, are linked to the yield on Treasurys and therefore would also rise.”

While consumers who have fixed interest rate mortgages will be immune to any changes in borrowing costs, home buyers shopping for a loan or those with mortgages that fluctuate may see a rise in rates later on, some analysts say.

Mark Vitner, senior economist at Wells Fargo Securities, told the Associated Press that he doesn’t expect the downgrade to drive up interest rates instantly since the economy is still weak and borrowers aren’t competing for money and driving rates higher. However, he expects in three to five years, loan demand will be much higher and then the downgraded credit rating might cause rates to rise.

Analysts are still waiting to see if the other rating agencies, Moody’s and Fitch, follows S&P’s lead in its downgrade of the U.S. credit rating. If so, the aftermath could be much worse, analysts say.

The debt deal reached by Congress last week was expected to save the U.S. from any credit rating downgrade. However, S&P said lawmakers fell short in its deal. Congress’ deal called for $2 trillion in U.S. deficit reduction over the next 10 years; S&P had called for $4 trillion.

VIDEO: NAR Chief Economist Lawrence Yun on U.S. Debt Downgrade: Impact on Real Estate




In June, the Home Affordable Modification Program helped 657,044 home owners avoid foreclosure through permanent loan modifications – that’s up from 633,459 in May, according to Treasury Department statistics released Friday.

However, while the number has grown, the numbers still fall short of the initial goal to help 3 million to 4 million borrowers through HAMP, which since 2009 has reduced mortgage payments to help borrowers avoid foreclosure. (Home owners in the program must make a few trial payments before the loan modification becomes permanent.)

For underwater home owners – those who owe more on their mortgages than their home is currently worth – about 6,941 have participated in a principal-reduction program, up from 4,911 last month, the Treasury Department reported late last week. For borrowers who qualified to have their loan balances reduced, they’ve seen median principal reductions of $67,751, or 30.7 percent.

“We’re continuing to see a slight improvement in home prices and a decline in mortgage defaults as our foreclosure prevention programs reach more borrowers upstream in the process,” says Raphael Bostic, Housing and Urban Development assistant secretary. “But we have much more work to do to help the market recover and to reach the many households there and across the nation who still face trouble.”




The recession has hit the younger generation hard and is forcing them to delay many major life changes and purchases, according to a new survey. About 44 percent of Millennials – people aged 18 to 29 – say they will have to delay buying a home due to economic factors, according to a survey conducted by The Polling Co. Inc./WomanTrend.

About 75 percent say they have or will delay a major life change or purchase due to economic factors, and 30 percent say the bad economy has prompted them to delay changing jobs or cities. What’s more, nearly 25 percent say they will delay starting a family, and 18 percent say they will delay getting married.

Such delays by the younger generation has started to affect household formation. Many young professionals are moving back in with their parents to curb costs, which has caused household to grow in recent years after facing decades of declines.

“The impact of the poor economy, in human terms, has been devastating. This is especially true for young Americans, whose lives have been interrupted and dreams put on hold due to the lack of economic opportunity,” says Paul T. Conway, president of Generation Opportunity.

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