The downgrade of the U.S. Fitch rating has had a domino effect on Fannie Mae and Freddie Mac. Fitch downgraded the two government-sponsored entities (GSEs) on Wednesday mainly because the U.S. government’s ratings were downgraded on Tuesday.
Fitch Ratings has downgraded Fannie Mae's and Freddie Mac's Long-Term Issuer Default Ratings (IDR) and senior unsecured debt ratings to 'AA+' from 'AAA' and downgraded their respective Government Support Ratings (GSR) to 'aa+' from 'aaa.' Fitch said the outlook for the two GSEs is stable.
A rating analysis released by Fitch says as government-sponsored GSEs, Fannie Mae and Freddie Mac benefit from implicit government support. The enterprises' respective Long-Term IDRs and GSRs are directly linked to the U.S. sovereign's Long-Term IDRs based on Fitch's view of the U.S. government's direct financial support. Fannie Mae and Freddie Mac's respective 'F1+' Short-Term IDRs map to each's Long-Term IDR based on the Ratings Correspondence Table in Fitch's Non-Bank Financial Institutions Rating Criteria.
“Fitch’s downgrade of Fannie Mae is consistent with its recent ratings downgrade of the U.S. and is not being driven by fundamental credit, capital, or liquidity deterioration at Fannie Mae," said a Fannie Mae spokesperson. A Freddie Mac spokesman echoed those comments.
Fitch said the downgrade of Fannie Mae's and Freddie Mac's Long-Term IDRs and GSRs is consistent with the recent action taken on the U.S. and is not being driven by fundamental credit, capital or liquidity deterioration at the firms. Fitch's report "GSE Rating Linkage to the U.S. Sovereign" further articulated the rating linkages, dated Nov. 12, 2021.
The analysis said that the firms continue to benefit from meaningful financial support from the U.S. government. Key rating drivers for aligning Fannie Mae's and Freddie Mac's ratings to the U.S. rating include their “mission-critical function to the U.S. housing finance system” and the U.S. Treasury's Senior Preferred Stock Purchase Agreements (SPSPAs). Fitch believes Fannie Mae continues to execute on its mission to provide liquidity, stability and affordability to the housing finance industry, supporting rating equalization with the sovereign.
