The U.S. Budget Crisis and Mortgages

Usually, when the stock market tanks money moves into bonds, driving up prices and lowering yields. Not today, though. As of this writing the Dow Jones Industrial Average was down 200 points and the yield on the benchmark 10-year Treasury was up slightly at 3.41%. Of course, the market was slammed early Monday after Standard & Poor's warned that it might lower its rating on U.S. government debt because of mounting budget deficits. Next month the White House and Congress will need to reach a compromise at increasing the U.S. debt ceiling — but certainly this will only be achieved by both sides reaching a long-term budget deal. The operative word here is "long-term." Democrats will need to give in on massive cuts to federal spending and likewise the GOP will have to cease its pedantic notion that all tax hikes are evil. (You might say the "new normal" is on our doorstep.) Mark my words: if the two sides don't reach a deal you can kiss the mortgage and real estate markets goodbye until a compromise is reached. If they don't, the only segment of the mortgage industry that will be active is the servicing side. Just think of all those loan officers sitting around collecting pay checks while the application collects dust…