Standard & Poor's Ratings Services on Monday downgraded the credit ratings of mortgage lenders Fannie Mae and Freddie Mac and other agencies linked to long-term US debt.
The agency also lowered the ratings for farm lenders, long-term US government-backed debt issued by 32 banks and credit unions and
three major clearinghouses, which are used to execute trades of stocks, bonds and options.
All the downgrades were from AAA to AA+. S&P says the agencies and banks all have debt that is exposed to economic volatility and a further downgrade of long-term US debt. Their creditworthiness hinges on the US government's ability to pay its own creditors.
Stocks plunged further after the downgrades. The Dow Jones industrial average fell nearly 300 points, or 3.2%. The S&P 500 stock index tumbled nearly 5%. Investors seeking safety drove gold prices up and Treasury yields down.
Monday's downgrades of the mortgage giants Fannie and Freddie reflected their "direct reliance" on the US government, S&P said.
Fannie and Freddie own or guarantee about half of all US mortgages, or nearly 31 million home loans worth more than $5 trillion. As part of a nationalized system, they account for nearly all new mortgage loans. Their downgrade might force anyone looking to buy a home to pay higher mortgage rates.
Officials at Standard & Poor's say they will also indicate shortly how local and state governments will be affected by their decision on Friday to lower the long-term US debt from AAA to AA+.
S&P on Friday said that it was downgrading US debt for the first time in history because it lacks confidence that political leaders will make the choices needed to avert a long-term fiscal crisis.
The downgrade of long-term debt issued by the US government affects the banking and lending industries because many interest rates are pegged to the yields on Treasury securities. In addition, many companies use the securities as collateral that they would surrender if their bets lost value.
The lower credit rating for long-term US debt means that it might be considered less valuable for those purposes. It might become more costly for companies to borrow or trade.
Ten of the country's 12 Federal Home Loan Banks also were downgraded from AAA to AA+. The banks of Chicago and Seattle had already been downgraded earlier to AA+.
A spokesman for Freddie Mac declined to comment on the move.