In line with Fitch slicing the U.S. credit standing from the top-ranked AAA to AA+, the scores company Wednesday downgraded mortgage giants Fannie Mae and Freddie Mac to AA+.
“The downgrade 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 said in a release.
Fitch mentioned that “key rating drivers for aligning Fannie Mae’s and Freddie Mac’s ratings to the U.S. rating including their mission-critical function to the U.S. housing finance system and the U.S. Treasury’s Senior Preferred Stock Purchase Agreements.”
Should the liquidity within the capital markets deteriorate over an prolonged time frame with out U.S. authorities intervention, Fitch mentioned it will revisit its score of the 2 government-sponsored enterprises (GSEs).
Fannie and Freddie assure 70% of the mortgages within the U.S. by shopping for mortgages from lenders and repackaging them for traders, with the tip function of protecting mortgages at reasonably priced charges for debtors. Chartered by Congress, the GSEs are regulated by the Federal Housing Finance Agency. Fannie primarily offers with giant, industrial banks, whereas Freddie works with small banks and credit score unions.
Fitch downgraded the U.S. credit standing on Tuesday as a result of debt ceiling negotiations went into the 11th hour, elevating the chance of the U.S. defaulting on its debt. The movement of funds to the Freddie and Fannie may very well be disrupted ought to the United States default on its debt, Fitch mentioned.
Treasury Secretary Janet Yellen on Wednesday referred to as Fitch’s U.S. credit score downgrade “entirely unwarranted,” pushing again in opposition to the second-ever lower by a serious scores company. The final time the U.S. credit standing was downgraded was in 2011 when the federal authorities shut down.
The Biden administration additionally voiced its agency disapproval of the downgrade for the nation’s credit standing.
Some Washington pundits say the debt ceiling drawback has not been solved, simply postponed till January of 2024.
“The federal government has spent more money than it received in tax revenue in 56 of the last 60 years,” notes Michael Busler, a public coverage analyst and a professor of finance at Stockton University in Galloway, N.J. “The accumulated debt now totals more than $32 trillion, with most of that debt incurred since 2001. This reckless spending has caused numerous problems. Fitch says the downgrade was necessary.”
Busler says the federal government might clear up the debt ceiling disaster by lowering spending, “instead of kicking the can down the road, which is what the last four administrations have done.”