S&P removes Fannie Mae, Freddie Mac off CreditWatch

NEW YORK: Standard & Poor's Ratings Services has raised its subordinated debt rating on Fannie Mae and Freddie Mac to 'A' from 'BBB+' and removed the rating from CreditWatch Positive where it was placed Sept. 7, 2008.

The 'A' subordinated debt rating reflects our view of both the explicit support these securities receive from the 'AAA' rated U.S. government, and Fannie Mae and Freddie Mac's weakened financial profile.

Fannie Mae's primary regulator, the Federal Housing Finance Agency, in its capacity as conservator, has effectively suspended the interest-deferral provision of Fannie Mae's subordinated debt, which we believe will permit the timely payment of principal and interest on its subordinated debt while the company operates under conservatorship. This explicit support provided for the subordinated debt is now factored in the rating, and has stabilized the subordinated debt rating, S&P said.

However, both face a high degree of uncertainty while in conservatorship, in terms of its financial performance, the duration of the conservatorship, and ultimately the legal status it will retain after conservatorship, the rating agency said in a release.