Friday, July 15, 2011

S&P puts Fannie, Freddie on ratings watch due to U.S. debt concerns

The debt market is interconnected.  If the US loses it's triple A credit rating, then it will cost the US more to borrow funds from lenders.  This extra costs will also spill into the mortgage market, since all borrowers and competing for the same dollar.  Fannie and Freddie are 79.9% owned by the US government and the mortgages they purchase then resell on the market back or "insured" by the US government. 
The New York-based ratings agency placed triple-A bond ratings held by Fannie, Freddie and other government entities on negative 'credit ratings watch' citing the firms' reliance on the U.S. government, which is facing a debt downgrade of its own.
S&P's decision to put the GSEs on negative ratings watch arrived after it placed the country's triple-A sovereign credit rating on watch in response to lawmakers' failure to reach a consensus on raising the debt ceiling.
S&P also put triple-A rated debt issued by 30 financial firms under the Temporary Liquidity Guarantee Program on negative ratings watch along with ratings tied to the Federal Home Loan Banks and U.S.-based clearinghouses.
"Although we still believe that risk of a payment default on U.S. government debt obligations as a result of not raising the debt ceiling is small (though increasing), any default on scheduled debt-service payments on the U.S.'s market debt, however brief, could lead us to lower our long-term and short-term sovereign credit ratings on the U.S.," the ratings agency wrote in a report.
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