Wednesday, March 16, 2005

What Does GM Have To Do With My House?

You may have heard that General Motors shook up wall street with a warning this morning. What does this mean to housing? As one analyst put it, "GM has become more of a bank than a car company," and its residential financing arm is being reviewed for a downgrade by Moodys. Standard & Poor is going to cut the company's credit ratings as well and both actions will push up borrowing costs.

Its not just GM. Bond investors have "grown increasingly uncomfortable..people weren't being compensated for the risk." Yesterday Fitch Ratings said it may pull AIGs triple A rating, leaving just 7 US firms holding the top rank. "To put the erosion of AAA-rated companies in perspective, consider that 32 non-financial companies carried the distinction from 1980 to 1983."

Thin spreads have enabled massive industry borrowing: GSEs, home builders and originators all issue junk bonds. As financial corporations like GM falter, mortgage rates will head up. GM was down 13% at this writing.


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