Fitch Affirms Fannie Mae and Freddie Mac Ratings Following U.S. Sovereign Action; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed Fannie Mae's and Freddie Mac's 'AAA' Long-term Issuer Default Ratings (IDRs) with a Stable Rating Outlook. These rating actions follow Fitch's affirmation of the United States of America's (U.S.) 'AAA' Long-term foreign and local currency IDRs on April 13, 2015. A full list of rating actions follows at the end of this release.

KEY RATING DRIVERS - IDRs, UNSECURED DEBT, SUPPORT RATINGS, SUPPORT RATING FLOORS

The ratings of Fannie Mae and Freddie Mac are directly linked to the U.S. sovereign rating, based on Fitch's view of the U.S. government's direct financial support of the two housing government sponsored enterprises (GSEs). The rating linkages are further articulated in Fitch's report 'Rating Linkages to the U.S. Sovereign Rating', dated July 18, 2011.

The housing GSEs are among the most active issuers in the capital markets, benefiting from meaningful financial support from the U.S. government. A key rating driver and Fitch's rationale for aligning the GSEs' ratings to the U.S. government rating is the U.S. Treasury's Senior Preferred Stock Purchase Agreement (PSPA). Under the PSPA, the U.S. Treasury is required to inject funds into Fannie Mae and Freddie Mac to maintain positive net worth, so that each firm can avoid being considered technically insolvent by their conservator. Under the PSPA, the remaining funding available to Fannie Mae and Freddie Mac is $117.6 billion and $140.5 billion, respectively.

KEY RATING DRIVERS - SUBORDINATED DEBT & PREFERRED STOCK

The terms of Fannie Mae and Freddie Mac's subordinated debt require the deferral of interest payments if the firms fail to maintain specified capital levels. However, in a 2008 statement, the Director of FHFA stated that the GSEs would continue to make interest and principal payments on the subordinated debt, even if the minimum capital levels are not maintained. Fitch's 'AA-' ratings on the subordinated debt are reflective of the conservator's willingness to support these obligations and the current timeliness of interest and principal on these obligations.

The 'C/RR6' ratings of Fannie Mae's and Freddie Mac's preferred stock ratings reflect the ongoing deferral of payments and very low prospects for recovery.

RATING SENSITIVITIES - IDRs, UNSECURED DEBT, SUBORDINATED DEBT, SUPPORT RATINGS, SUPPORT RATING FLOORS

The ratings of Fannie Mae and Freddie Mac are directly linked to the U.S. sovereign rating and will continue to move in tandem. If at some point in the future, Fitch views government support as being reduced, the ratings of the GSEs may be delinked from the sovereign and downgraded.

Deterioration in Fannie Mae's or Freddie Mac's available liquidity and/or inability to access capital markets over an extended period may result in negative rating actions, irrespective of the U.S. sovereign rating.

Should the FHFA change its position regarding the payment of the GSEs' subordinated debt obligations or if there is any deferral of interest or principal payments, Fitch would likely downgrade the ratings on the subordinated debt.

RATING SENSITIVITIES - PREFERRED STOCK

Given the ongoing deferral of dividends and low prospects for recovery on Fannie Mae's and Freddie Mac's preferred stock obligations, Fitch does not envision any changes to the 'C/RR6' ratings for the foreseeable future.

As of year-end 2014 Fannie Mae and Freddie Mac remained by far the largest players in the U.S. mortgage market, with total assets of $3.25 trillion and $1.95 trillion, respectively.

Fitch has affirmed the following ratings:

Fannie Mae (Federal National Mortgage Association)

--Long-term IDR at 'AAA', Outlook Stable;

--Short-term IDR at 'F1+';

--Support rating at '1';

--Support floor at 'AAA';

--Short-term debt at 'F1+';

--Senior unsecured at 'AAA';

--Subordinated debt at 'AA-';

--Preferred stock at 'C/RR6'.

Freddie Mac (Federal Home Loan Mortgage Corporation)

--Long-term IDR at 'AAA', Outlook Stable;

--Short-term IDR at 'F1+';

--Support rating at '1';

--Support floor at 'AAA';

--Short-term debt at 'F1+';

--Senior unsecured at 'AAA';

--Subordinated debt at 'AA-';

--Preferred stock at 'C/RR6'.

Additional information is available 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Fitch Affirms United States at 'AAA'; Outlook Stable' (April 13, 2015);

--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);

--'Rating Criteria for Banking Structures Backed by Mutual Support Mechanisms' (Dec. 18, 2013);

--'U.S. Housing Finance GSEs: Where to from Here' (Feb. 28, 2013);

--'Rating Linkages to the U.S. Sovereign Rating' (July 18, 2011).

Applicable Criteria and Related Research:

Global Non-Bank Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863584

U.S. Housing Finance GSEs: Where to from Here

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=700032

Rating Linkages to the U.S. Sovereign Rating

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646469

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983312

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Contacts

Fitch Ratings
Primary Analyst
Christopher Wolfe
Managing Director
+1 212-908-0771
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY
or
Secondary Analyst
Bain K. Rumohr, CFA
Director
+1 312-368-3153
or
Committee Chairperson
Doriana Gamboa
Senior Director
+1 212-908-0865
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Christopher Wolfe
Managing Director
+1 212-908-0771
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY
or
Secondary Analyst
Bain K. Rumohr, CFA
Director
+1 312-368-3153
or
Committee Chairperson
Doriana Gamboa
Senior Director
+1 212-908-0865
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
alyssa.castelli@fitchratings.com
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com