Fitch Ratings has affirmed Fannie Mae's long-term issuer default rating (IDR) at 'AAA', but it downgraded the GSE's preferred stock rating to 'A+' from 'AA-.'
Fannie Mae's preferred stock also remains on rating watch negative, where it was originally placed on May 6 by the credit rating agency.
The affirmation of Fannie's long-term IDR and senior debt rating reflect the high probability of external support becoming available and the company's importance to the U.S. housing market. The potential for explicit support has been recently expressed by the U.S. Treasury through its plan to maintain the confidence and stability of the financial markets and, in particular, the liquidity of government sponsored enterprise debt.
Also, the Federal Reserve has granted the Federal Reserve Bank of New York the authority to lend to Fannie Mae on a secured basis should it be needed.
Fitch's downgrade of Fannie Mae's preferred stock reflects the higher proportion of preferred stock to core capital as defined by Office of Federal Housing Enterprise Oversight in the wake of the recent erosion of core capital due to operating losses.
Fannie Mae's preferred stock as a percentage of core capital was 36.9% at March 31, excluding the negative impact of accumulated other comprehensive income.
Fitch expects that percentage will increase in the second quarter due to the recent capital raise.
As a result, Fitch believes that preferred shareholders have greater exposure to potential losses. This warrants the one notch differential from Fannie Mae's subordinated debt rating.