News broke that our government reached an agreement (to be voted on) over the debt ceiling. While that is fine news, the whole episode raises serious issues.

Orion’s brokers know that many things impact the ability of a family to finance the purchase of their home or refinance their existing loan: the programs being offered by lenders like Orion, the credit profile of the borrower, the value of a house, and the general interest rate climate. Although inflation continues to drive interest rates, in the last several weeks the news has been dominated by the U.S. Government. Debt talks ended and a potential deal is set that would raise the U.S. government's $31.4 trillion debt ceiling and limit spending on most items for two years.

The whole process has moved mortgage, and all, rates higher: brokers know that markets don’t like uncertainty and the potential of default increasing. Republican negotiators have reportedly agreed for a smaller 3% increase in defense spending. Non-defense discretionary spending is expected to be maintained at current levels. The White House is said to be mulling scaling back on increased funding for the Internal Revenue Service, cutting $10 billion from an $80 billion budget increase for the agency that was planned under the Inflation Reduction Act to target wealthy individuals.

Leading up to the agreement Orion’s management noted that the Biden Administration was looking at a contingency plan that was created after the 2011 debt-ceiling impasse. Under the plan, federal agencies would submit payments to the Treasury no sooner than the day before they're due. By contrast, under the current system payment files may be submitted well before their due dates. If the Treasury doesn't have enough funds to make a full day's worth of payments, it would likely delay paying them until it does. The Treasury had been preparing for possibly delaying some payments after June 1.

Many believed that the best out come would be the debt ceiling being raised without spending cuts. Spending cuts hit the U.S. economy, and we don’t need more news in terms of a slowdown. But experienced brokers know that a slowing economy traditionally leads to lower rates, not necessarily a bad thing.

Prior to the agreement, analysts noted five work arounds. The U.S. Treasury could have prioritized interest and principal payments, shifting things on its own based on importance. The President could have invoked Section 4 of the 14th amendment, ordering the U.S. Treasury to keep issuing bonds and keep paying the government's bills. The Federal Reserve could lend against defaulted debt, or the Treasury could issue premium bonds offering sky high interest rates. Lastly, and least likely, the Treasury could have issued a platinum $1 trillion coin, an idea from the same issues we faced in 2011.

For the sake of everyone, Orion’s management and AEs are glad that Congress and the President reached a deal and took the issue out of the headlines. This should serve to help the bond market, including mortgage rates for our borrowers. There are other things to worry about!

‍

‍

‍

‍

‍

‍