Collateral Damage Could Include Higher Mortgage Rates

By Nick Timiraos

Mortgage markets in the U.S., which remain on government life support, could be rattled by the downgrade of the U.S. credit rating, potentially raising borrowing costs for consumers. Given the “sufficiently perilous” state of the U.S. mortgage market, a downgrade “can do nothing but harm the market,” says Karen Shaw Petrou, managing partner of Federal Financial Analytics, a research firm in Washington. “The question is how much?” Standard & Poor’s warned last month that a downgrade of the U.S. credit rating likely would trigger a downgrade of mortgage-finance giants Fannie Mae and Freddie Mac. The firms were effectively nationalized three years ago, and they’ve maintained their triple-A rating only because the government has effectively guaranteed their debt.

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