S&P Warns on Freddie, Fannie Ratings - Real Estate * US * News * Story

Runway Angels
The superbowl of fashion shows, models walk down the runway at the 2009 Victoria's Secret Show.
Smartphone Guide
Here's a need-to-know guide to nine devices, based on features, price, network and platform.
Wines for the Holidays
Not quite sure what wine to pair with Turkey or Creme Brulee? Our experts do.

FEATURED QUIZZES

How Well Do You Know Your Bird?
Let's talk turkey. Test your turkey knowledge and perhaps pick up a bit of trivia to trot out at your holiday meal.
A Healthier & Wealthier You
Take the following quiz and find out how much you know about the impact of obesity on the health of the U.S. economy.
The Billionaire BFF's
Philanthropists. Bridge partners. Hockey players. Which responses are based on facts from Buffett's and Gates' real lives?

SPECIAL REPORTS

Winterizing Your Portfolio
If 2009 was the winter of our discontent, will 2010 be a winter wonderland for investors? A lot depends on the recovery—or lack thereof.
Investor's Guide to Real Estate
Some even say the long-awaited recovery is here. Regardless, buyers and sellers alike can profit from our guide.
Alternative Investing
Stocks and bonds? Sure. But it's a big world out there for investors.

CNBC ON DIGG

S&P Warns May Cut Ratings on Fannie, Freddie

Sectors:Utilities

Companies:Freddie Mac | Fannie Mae

By: Reuters | 25 Jul 2008 | 02:15 PM ET

Text Size

Standard & Poor's said on Friday it may cut its ratings on the preferred shares and subordinated bonds of Fannie Mae and Freddie Mac, citing concerns that U.S. government plans to shore up the mortgage finance companies may subordinate the debt.

AP
The senior debt of the government sponsored enterprises (GSEs) was affirmed at the top "AAA," due to the government's explicit and implicit support of the companies. Their risk to the government ratings were also placed under review for downgrade.

The U.S. House of Representatives passed a housing rescue bill on Wednesday while the White House dropped a threat to veto it, which would give Fannie Mae and Freddie make a government lifeline.

"There is still ambiguity on the part of regulatory authority as it applies to how nonsenior creditors of Fannie Mae and Freddie Mac would be treated if the U.S. Treasury ever acted on its three-point liquidity plan," S&P said in a statement.

"The language in (the housing bill) increases the likelihood that subordinated debtholders and preferred stockholders would face greater subordination risk," S&P said.

This risk is not currently reflected in the agencies' subordinated debt and preferred shares, S&P said. It rates both Fannie Mae and Freddie Mac's subordinated debt and preferred shares "AA-minus," the fourth-highest investment grade.

These ratings may be cut by one or two notches at the conclusion of the review, S&P said.

"Both firms face weak earnings due to rising credit expenses," and are likely to experience higher stress on capital and earnings over the next several quarter, S&P said.