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The role of the bond industry with the market and economy.

 

The companies that insure bonds are coming under heavy fire as they are forced to write down billions in expected losses, how does this effect the market?

There are multiple types of bonds that trade a security instruments. Some are mortgage bonds others are municipal bonds, that often cover projects that local and state governments use to raise capital. One of the nations largest bond insurers MBIA posted over a two billion dollar loss recently. MBIA is one of the largest independent companies that insurers that bonds will perform when they are financially underwritten. As their performance has declined, their ability to offer insurance on their bonds has diminished, the residual effect of this happening is that it pushes the rates up on the securitized bonds and could lead towards higher rates. This has a major impact on municipalities as they look to pursue capital expenditure as the higher rates result in higher fees that must be passed on to the community, typically through higher taxes. The recent actions by the federal reserve should help to offset some of the higher premiums but this industry should be watched closely as a significant credit problem or continued decline in the real estate market could have a long term impact on property taxes and development across the country.

2-5-2008 ? LoanNetwork.com

 

 

 

 

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