Moody's Eyes Fannie's Financial Strength Rating

Fannie Mae's B-plus Bank Financial Strength Rating has been placed on review for possible downgrade by Moody's Investors Service. Moody's affirmed several other ratings on the government-sponsored enterprise: senior debt, Aaa; short-term debt, Prime-1; subordinated debt, Aa2; and preferred stock, Aa3. The rating actions followed Fannie Mae's announcement of a $3.6 billion loss for the fourth quarter and a $2.1 billion loss for all of 2007. "This loss exceeded our expectations and represents a significant deterioration of surplus regulatory capital," which stood at $3.9 billion as of Dec. 31 based on the required 30% surplus to the statutory minimum, the rating agency said. "Additionally, Moody's expects the company to record sizable losses in the first half of 2008 and possibly a net loss for the year due to the continued deterioration in the residential mortgage sector." Moody's said its concerns about Fannie's capital position were "partially mitigated" by an announcement by the Office of Federal Housing Enterprise Oversight that it will discuss with the housing GSEs a gradual decrease in the required 30% capital surplus. Moody's can be found online at http://www.moodys.com.