Loan Officer In Spain

Local investors calmer than '08

1. Uncle Sam's interest rate may rise.

S&P is one of three major rating agencies that assess the riskiness of large institutions such as corporations and governments. The downgrade reflects a lack of confidence in the U.S. government to pay its debts over time. Riskier countries have to pay higher interest rates, just as riskier consumers do. S&P's decision rocked the United States - and the world - because the nation has generally been considered one of the safest investments around.

2. If the government pays more, you pay more.

The interest rate the United States pays on its short-term loans is determined by the market for Treasury bills. The downgrade could increase the yields on those bonds, forcing the government to spend more to borrow the same amount of money. Many consumer loans, such as credit cards and mortgages, are linked to the yield on Treasuries and therefore would also rise.

3. Not everything will change.

Many major consumer loans have fixed interest rates that won't change even if the cost of borrowing rises for the federal government. Far-reaching changes to the credit card industry that took effect last year prohibit lenders from changing their interest rates without giving at least 45 days notice in most cases. They also won't be able to increase the rate on purchases you've already made, only new ones. But if you want a loan for a new car or college tuition, for example, be prepared for higher rates. In addition, some credit cards and home equity loans have variable interest rates that can fluctuate with the yield on Treasuries. Check your loan agreement to see what type of rate you have.

4. What's the worst-case scenario for me?

John Ulzheimer, president of consumer education for SmartCredit.com, thinks the downgrade could force some homeowners to default on a portion of their mortgages, exacerbating the housing crisis. During the economic boom, many people financed their homes with two loans: a standard mortgage and a special home equity line of credit. These HELOCS require borrowers to pay only the interest on the loan, and the rate varies each month. If there is a significant increase, some homeowners may not be able to make payments.

5. What's the worst-case scenario for Uncle Sam?

The S&P downgrade is likely to be a blow to the economy.

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"This was an isolated incident involving two former employees who violated the clear values and ethical guidelines we consistently emphasize throughout our company," said Paulina McGrath, president of Republic State Mortgage. "Republic State Mortgage cooperated fully during this investigation, and the additional quality controls we have initiated give us confidence that this will never happen in our company again.

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