Freddie Mac Sr. Debt Rating Affirmed At 'AAA/A-1+'; Others Lowered, On CreditWatch Negative

NEW YORK Aug. 26, 2008--Standard & Poor's Ratings Services said today that it affirmed its 'AAA/A-1+' senior unsecured debt rating on Freddie Mac with a stable outlook.

At the same time, we lowered the risk-to-the-government stand-alone issuer credit rating to 'A-' from 'A', the subordinated debt rating to 'BBB+', and the preferred stock rating to 'BBB-' from 'A-'.

The ratings that were lowered are all placed on CreditWatch Negative.

"Our expectation of continued government support for the mortgage government-sponsored enterprises, as detailed in the description of their expanded role in the U.S. Treasury's Economic Stimulus Plan released earlier this year, is reflected in our affirmation of the long-term 'AAA' and short-term 'A-1+' senior unsecured debt ratings," said Standard & Poor's credit analyst Victoria Wagner.(middle right photo)

The government-supported enterprises' mortgage franchises are viable and critical to the financing of the U.S. mortgage market and to the overall economy.

The lowering and placement on CreditWatch Negative of Freddie Mac's nonsenior ratings reflects the heightened uncertainty about whether government support will extend to these securities.

The risk-to-the government rating was lowered and placed on CreditWatch Negative because of the expected stress on capital and earnings Freddie Mac faces during the next several quarters.

The lowered ratings also reflect the challenging market conditions Freddie Mac faces in managing its core mortgage business, and the likelihood that it will require additional capital to offset mounting losses and maintain its regulatory capital ratios at an acceptable level.

The depressed equity pricing of its common and preferred securities and the looming uncertainty about Treasury's financial assistance has created an even more challenging operating environment, significantly inhibiting Freddie Mac's financial flexibility.

Freddie Mac's management has committed to raising $5.5 billion of equity, as both common and preferred stock.

However, if Freddie Mac fails to execute this transaction, it heightens the likelihood that Treasury will have to provide support, which in turn might lead to some losses for existing preferred and subordinated debt holders.

Treasury is in a unique statutory role and can set the terms of its investment while considering the broader systemic and economic issues and protecting taxpayers.

Treasury's support could take several forms as outlined in Public Law 110-289. It could be straightforward funding support through expansion of the Treasury line, buying Freddie Mac's debt or its agency mortgage-backed securities, or it could consider an equity investment.

The possibility of an equity investment is driving Freddie Mac's equity price lower and the yield on its preferred stock higher.

An equity investment by Treasury could be accompanied by the consideration of nonpayment of existing preferred stock and common dividends.

The subordinated notes pose incremental risk to investors because of an interest deferral feature given certain trigger events tied to Freddie Mac's regulatory capital levels.

The subordinated debt covenant language also states that a deferral of the subordinated debt interest payment triggers the nonpayment of all preferred stock and common dividends, arguing for a close alignment of preferred stock and subordinated debt ratings.

However, we now rate the preferred stock two notches below the subordinated debt to reflect the increased risk of nonpayment of dividends as a means of capital preservation.

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

Our nonsenior and risk-to-the-government ratings on Freddie Mac will remain on CreditWatch Negative until further clarity can be derived regarding Treasury's intention surrounding financial assistance and further clarity on Freddie Mac's execution of its capital-raising initiatives and the degree of capital cushion it holds over regulatory capital ratios.

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

Fannie Mae 'AAA/A-1+' Sr. Debt Rating Affirmed; Other Ratings Lowered, On CreditWatch Negative

NEW YORK, Aug. 26, 2008--Standard & Poor's Ratings Services said today that it affirmed its 'AAA/A-1+' senior unsecured debt rating on Fannie Mae with a stable outlook.

At the same time, we lowered our risk-to-the-government stand-alone issuer credit rating on Fannie Mae to 'A-' from 'A', the subordinated debt rating to 'BBB+' from 'A-', and the preferred stock rating to 'BBB-' from 'A-'.

All the ratings we lowered are also placed on CreditWatch Negative.

"The affirmation of the long-term 'AAA' and short-term 'A-1+' senior unsecured debt ratings reflect our expectation of continued government support for the viability of Fannie Mae and its senior unsecured debt, as represented in the Treasury's Economic Stimulus Plan released earlier this year," said Standard & Poor's credit analyst Victoria Wagner. (top left photo)

The government-sponsored enterprises' mortgage franchises are viable and critical to the financing of the U.S. mortgage market and the overall economy.

(Federal Reserve Bank, Washington, DC, at left)

The downgrade and placement on CreditWatch Negative of the subordinated debt and preferred stock ratings reflects increasing uncertainty about whether government support will extend to these securities in the context of further deterioration in the asset quality of Fannie Mae's mortgage portfolio.

The risk-to-the-government rating was lowered and placed on CreditWatch Negative because of the expected higher stress on capital and earnings Fannie Mae faces over the next several quarters.

The long duration of the weak housing market and the rising severity of residential mortgage losses are driving credit costs higher and Fannie Mae's operating earnings lower.

The majority of credit-related losses to date have been from its exposure to Alt-A mortgages, which amounts to 11% of its total single-family mortgage book.

Standard & Poor's expects peak mortgage losses to occur in 2009 to a level that could require further capital raising to maintain the cushion above the regulatory requirements.

In addition to the weak mortgage credit cycle, Fannie Mae is facing ever more challenging market conditions to raise cost-effective capital. The depressed market pricing of its common and preferred securities and the uncertainty about Treasury's financial assistance has created an even more challenging operating environment, significantly inhibiting Fannie Mae's financial flexibility.

The recently passed Housing and Economic Recovery Act of 2008 (Public Law 110-289) has reinforced expectations that the government will act to prevent default on Fannie Mae's senior debt obligations, but has also led to great speculation in the financial markets about if and how the U.S. Treasury will act and what will be the related consequences for subordinated debt and preferred stockholders.

Treasury has several options authorized under Public Law 110-289. These include the following: buying Fannie Mae's debt or its agency mortgage-backed securities; providing an explicit guarantee for its debt; or putting forward an equity investment. An equity investment by Treasury may be accompanied by the consideration of nonpayment of existing preferred and common dividends.

The subordinated notes pose incremental risk to investors because of an interest deferral feature given certain trigger events tied to Fannie Mae's regulatory capital levels.

The subordinated debt covenant language also states that a deferral of the subordinated debt interest payment triggers the nonpayment of all preferred and common stock dividends.

This feature argues for a close alignment of preferred stock and subordinated debt ratings. However, we now rate the preferred stock two notches below subordinated debt to reflect the increased risk of nonpayment of dividends as a means of capital preservation.

Furthermore, there are no covenants restricting the payment of interest on the subordinated debentures, while the preferred dividends are suspended. Fannie Mae's nonsenior debt and risk-to-the-government ratings will remain on CreditWatch Negative until Treasury's intentions are clarified.

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

Construction Costs Hit Multi-Year High, Grubb & Ellis Reports

SANTA ANA, CA--Bob Bach, (top right photo) Senior Vice President, Chief Economist, Grubb & Ellis Co., says construction costs are off to the races once again due to the summer spike in the prices of oil and some commodities that are inputs to the manufacture of construction materials.

Both the Consumer Price Index and the Producer Price Index for Finished Goods hit multi-year highs on a year-ago basis in July.

But the recent decline in oil and commodities prices and the strengthening U.S. dollar, both related to slower global economic growth, suggest that inflation may cool in the near term.
This should allow the Federal Reserve to keep interest rates low awhile longer.

Chart below shows CPI, PPI & Non-residential Construction Costs% Change Year/Year

Source: U.S. Bureau of Labor Statistics, Grubb & Ellis

Contact: Janice McDill at 312.698.6707. corporatecommunications@grubb-ellis.com.

Anemic Holiday Shopping Season Predicted

CHICAGO, IL-Kurt Ivey(top right photo), senior vice president, marketing, at Chicago-based Madison Marquette, says "Late last week I had the opportunity to listen to a conference call on “back-to-school shopping” hosted by Citigroup and Deloitte.

While the back-to-school shopping season is still underway, several stats were very telling in terms of today’s slower economy.

Among them, 71% of those surveyed planned to spend less this year (with 69% planning to spend $100 to $500 for the family).

Apparel appears to be taking the biggest hit with 83% planning to spend less. Not surprisingly, the main reasons for spending less are tied to higher gas, home energy, and food costs.

In terms of shopping, 88% planned to patronize the discount and value-oriented department stores. One of the most significant implications I saw in the study was that almost 70% of those surveyed planned to satisfy all their shopping needs in just 1 to 3 stores, suggesting very focused shopping trips.

This lower shopping activity, combined with the pervasive sentiment that our economy is weak has dramatic implications for retail spending in the second half of 2008. Unless conditions improve, driven to a large degree by noticeably stable lower oil / gas prices, we may be looking toward an anemic holiday shopping season.

CONTACT: Kurt Ivey, Senior Vice President, Marketing, MadisonMarquette, kurt.ivey@madisonmarquette.com

Arbor Closes $1,100,000 Fannie Mae DUS® Loan for Apple Creek Apartments in Kingsville, TX

UNIONDALE, NY, Aug. 26, 2008 –- Arbor Commercial Funding, LLC (“Arbor”), a wholly-owned subsidiary of Arbor Commercial Mortgage, LLC, announced the recent funding of a $1,100,000 loan under the Fannie Mae DUS® product line to finance the 120-unit complex known as Apple Creek Apartments (top right photo) in Kingsville, TX.

The 92-month loan amortizes on a 30-year schedule and carries a note rate of 6.89 percent.
The loan was originated by Michael Jehle, (

bottom left photo) Director, in Arbor’s full-service Bloomfield Hills, MI lending office.

“Our client took advantage of Fannie Mae’s Supplemental Loan Program and borrowed additional loan dollars on top of their original mortgage funded in 2005,” said Jehle. “This program is available to all clients under the Fannie Mae program if the growth in Net Operating Income supports the additional advance.”
Contact: Ingrid Principe, Tel: (516) 506-4298
iprincipe@arbor.com