S&P Lowers Fannie's Risk Rating

Standard & Poor's Ratings Services has lowered its risk-to-the-government rating on Fannie Mae from AA-minus to A-plus. S&P also affirmed its AAA/A-1-plus senior unsecured debt rating and its AA-minus subordinated debt and preferred stock ratings on the government-sponsored enterprise. The ratings were removed from CreditWatch Negative, and the outlook is deemed negative on all except the senior unsecured debt rating, which is stable. "The lower risk-to-the-government rating reflects Fannie Mae's weak earnings and pressured capital ratios, which are outside the tolerance for a AA-minus rating," said S&P credit analyst Victoria Wagner. (Fannie has posted three straight quarterly losses, S&P noted.) The rating agency said Fannie is facing "the most challenging housing and mortgage cycle in more than three decades," and its core earnings are weakened from higher credit-related expenses and "significant spread widening" on mortgage-backed securities. However, its exposure to subprime mortgage risk -- 1.9% of its total single-family mortgage portfolio -- is "extremely low," S&P said. The rating agency can be found online at http://www.standardandpoors.com.