Monday, August 8, 2011

S&P Downgrades Fannie Mae, Freddie Mac, Others -- Will US States be next?

Standard & Poor's downgraded the ratings of government-sponsored enterprises Fannie Mae and Freddie Mac Monday, citing their reliance on U.S. government.

Both Fannie and Freddie were lowered to AA+ from triple-A. The Federal Home Loan Banks were also cut to AA-plus.

Fannie and Freddie own or guarantee about half of all U.S. 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.

The downgrade came amid a number of other ratings actions that are rippling from S&P's decision late Friday to cut the credit rating of the United States one notch from triple-A to AA+.

S&P also cut ratings for several of the main arteries of the US financial system—the Depository Trust Co., National Securities Clearing Corp., Fixed Income Clearing Corp. and the Options Clearing Corp.—were cut one notch to AA-plus.

These institutions, previously rated AAA by S&P, clear and process trades and are crucial to the daily workings of the U.S. financial markets. (more)