S&P: Fannie Mae And Freddie Mac 'AAA/A-1+' Unsecured Ratings Affirmed; Preferred Stock Rating Cut

NEW YORK, Sept. 7, 2008--Standard & Poor's Ratings Services said today that it affirmed its long-term 'AAA' and short-term 'A-1+' senior unsecured debt ratings on Fannie Mae and Freddie Mac. The outlook is stable.

At the same time, we lowered our risk-to-the-government standalone issuer credit ratings on Fannie Mae and Freddie Mac to 'R' (regulatory supervision) from 'A-' and withdrew the ratings.

We have also revised the CreditWatch listing of the 'BBB+' subordinated debt ratings on these entities to positive from negative.

In addition, we lowered the preferred stock ratings to 'C' from 'BBB-' and removed the ratings from CreditWatch with negative implications.

The subordinated debt and preferred stock ratings were originally placed on CreditWatch Aug. 26, 2008.

These rating actions follow today's announcement by the U.S. Treasury that Fannie Mae and Freddie Mac have been placed in conservatorship by their regulator, the Federal Housing Finance Agency (FHFA).

(Henry M. Paulson Jr., middle left photo, is Secretary of the Department of Treasury and also heads the Federal Housing Finance Agency.)

"Our affirmation of the long-term 'AAA' and short-term 'A-1+' senior unsecured debt ratings reflects the explicit government support under the terms of the conservatorship and Treasury's establishment of a preferred stock purchase agreement," said Standard & Poor's credit analyst Victoria Wagner. (middle right photo)

We believe the government has now clearly reinforced its support of the two government-sponsored enterprises (GSEs).

The government's action underscores the importance it places on the GSEs, as well as its apparent belief that their mortgage franchises are viable and critical to the financing of the U.S. mortgage market and the overall economy.

We lowered and withdrew the risk-to-the-government ratings because of the conservatorship, with the FHFA acting as conservator with full control and oversight of the GSEs' businesses.

Under a conservatorship, the FHFA takes over the assets of and operates the GSEs with all of the powers of the shareholders, the directors, and the officers and conducts all business including authorizing the payment of valid obligations as outlined in the recently passed Housing and Economic Recovery Act of 2008.

The CreditWatch positive on the subordinated debt reflects our view that there is strong regulatory support for the continued timely payment of this debt.

(Federal Reserve Bank building, Washington, DC, middle left photo.)

If regulatory capital drops to a level that would breach regulatory minimum levels, we expect that the subordinated debt's interest deferral covenant will be waived, increasing the likelihood of timely payment.

Furthermore, there are no covenants restricting the payment of interest on the subordinated debentures while the preferred dividends are suspended.

We could raise the subordinated debt ratings once further information is available on the support that may be provided to Fannie Mae's and Freddie Mac's subordinated debtholders while the GSEs remain in conservatorship and post conservatorship.

Alternatively, upon final review of the status and support for subordinated debt payments, we could affirm these ratings.

The CreditWatch listing of the subordinated debt will be resolved upon review of the final terms of support outlined in Treasury's backstop plan for the GSEs.

The downgrade of the preferred stock ratings reflects FHFA's announcement that dividends on the preferred stock are being eliminated in view of the GSEs' weak near-term earnings prospects and the need to preserve capital.

TELECONFERENCE INFORMATION:

Standard & Poor's Ratings Services will hold a teleconference call on Monday, Sept. 8, 2008, at 11:00 AM Eastern Daylight time to discuss these rating actions and the related rationale.

The live call-in numbers are:

1-210-839-8781 (toll U.S.);

1-888-282-0378 (toll-free for U.S. and Canada);

44-20-7108-6390 (toll U.K.) and

0-800-279-9630 (toll-free U.K.).

The conference ID# is 6625004, and the

Passcode is SANDP.

Media Contact:

Jeff Sexton, New York, (1) 212-438-3448 jeff_sexton@standardandpoors.com

Analyst Contacts:

Victoria Wagner, New York (1) 212-438-7406
Daniel E Teclaw, New York (1) 212-438-8716
Xavier Chavee, New York (1) 212-438-6834
Scott Bugie, Hong Kong (852) 2533-3513