Keeping it Simple with Simplify Asset Management Keeping it Simple | Ep. 47: Are Interest Rates TooHig? Thoughts from Credit Markets
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Apr 7, 2025 John Toohig, a credit market expert from Raymond James, joins the conversation to unpack the complexities of the whole loan market. He discusses the effects of rising interest rates on consumer behavior, particularly during the COVID-19 pandemic. The conversation also delves into the privatization of government-backed mortgages and its potential impact on rates. Additionally, Toohig highlights the intricate relationship between credit market trends and economic indicators, all while keeping the insights engaging and accessible.
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Whole Loan vs. Bond Market
- The whole loan business focuses on individual borrower repayment ability, unlike the aggregate approach of bond markets.
- This offers a more nuanced view of credit risk, although it incorporates anecdotal evidence.
Fixed-Rate Mortgage Impact
- The 30-year fixed-rate mortgage uniquely protects US homeowners from rising rates, unlike other countries.
- This raises the question of whether Fed rate cuts stimulate or contract the economy due to their impact on income vs. debt service.
FICO Inflation
- The 2020 credit report purge and forbearance artificially inflated FICO scores, masking underlying creditworthiness.
- Borrowers with inflated FICOs behave according to their original credit behavior, creating hidden risks.