OREANDA-NEWS. April 14, 2016. 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 12 April, 2016. 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. The remaining funding available to Fannie Mae and Freddie Mac is \\$117.6 billion and \\$140.5 billion, respectively.

The current terms of the PSPA require the GSEs to reduce their capital buffers each year until they reach zero on 1 January 2018, thereby reducing the GSEs' capital buffers to absorb potential losses. Fitch believes the likelihood of additional draws from the U.S. Treasury will increase over time, specifically, if economic conditions worsen materially or interest rates change rapidly. Nonetheless, additional capital draws from the Treasury would not change Fitch's current view of the ratings in light of the U.S. government's direct financial support assumptions.

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.

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 2015 Fannie Mae and Freddie Mac remained by far the largest players in the U.S. mortgage market, with total assets of \\$3.22 trillion and \\$1.99 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'.