Fitch places Fannie Mae and Freddie Mac on rating watch negative

Fitch Ratings again, chipping away at the US sovereign

Fitch places Fannie Mae and Freddie Mac ratings on rating watch negative

• Rating actions follow Fitch's placement of Unities States’ 'AAA' long-term foreign and local currency IDRS on RWN on May 24, 2023
• Fannie Mae's and Freddie Mac's long-term IDRS and GSRS are directly linked to US sovereign's long-term IDR
• Also unclear at this time what level of support housing GSES can expect if US rating were to drop to 'restricted default (rd)'
• If we were to downgrade US sovereign to 'RD', it would not necessarily lead to an immediate downgrade of housing gses' ratings to 'rd'
• Housing GSES continue to benefit from meaningful financial support from US government

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Yesterday:

• ForexLive Asia-Pacific FX news wrap: Fitch place US credit rating on rating watch negative

Freddie Mac is the commonly used name for the Federal Home Loan Mortgage Corporation (FHLMC)

• is a government-sponsored enterprise (GSE) chartered by the U.S. Congress
• It was established in 1970 to provide a continuous flow of affordable funds to mortgage lenders, such as commercial banks, mortgage bankers, and savings institutions, in support of homeownership and rental housing.
• Freddie Mac purchases home mortgages, pools them, and then sells them as mortgage-backed securities to investors on the open market. This secondary mortgage market increases the supply of money available for mortgage lending and increases the money available for new home purchases.

Fannie Mae is short for the Federal National Mortgage Association (FNMA). A sister agency to Freddie Mac

• is a government-sponsored enterprise (GSE) in the US
• was created in 1938 during the Great Depression as part of the New Deal with the goal of expanding the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities. This allows lenders to reinvest their assets into more lending and effectively increases the number of lenders in the mortgage market, which in turn helps to lower the costs for borrowers.
• In practice, Fannie Mae buys mortgages from lenders (like banks and other mortgage originators), bundles them together, and then sells these bundles as mortgage-backed securities to investors on the open market. Because of its GSE status, these securities are viewed as being backed by the "full faith and credit" of the U.S. government, which theoretically lowers their risk.

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