s&p fallout: fannie and freddie downgraded

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    S&P fallout: Fannie and Freddie downgraded

    By Charles Riley
    CNNMoney August 8, 2011 - 10:25 AM ET

    NEW YORK (CNNMoney) -- Credit rating agency Standard and Poor's on Monday downgraded the debt of mortgage finance giants Fannie Mae and Freddie Mac.

    The downgrades to AA+ are part of the continued fallout from the agency's decision to drop U.S. sovereign debt to AA+, an unprecedented move that rattled investors and sparked concern over the long-term impact of the action.

    It was widely expected that S&P's downgrade of U.S. debt would roll downhill to other entities that are closely linked to the federal government.

    Fannie and Freddie, which were taken over by the government in 2008, fuel home sales by purchasing mortgages from banks.

    "The downgrades of Fannie Mae and Freddie Mac reflect their direct reliance on the U.S. government," S&P said in a statement.

    It's not clear what -- if any -- effect the downgrade will have on Fannie and Freddie's borrowing costs. And since Treasury yields remain at very low levels, a sharp spike in mortgage rates seems unlikely.

    Some observers -- even S&P itself -- had feared interest rates would spike after a downgrade. But Treasury yields actually fell Monday, likely because the United States remains a good credit risk in the eyes of investors.

    S&P also said it was downgrading the Federal Home Loan Banks, which support consumer credit by making loans to other banks.

    Highly-rated businesses are expected to be let off the hook by S&P. Corporations that are based in the United States that have a AAA rating -- like Johnson & Johnson (JNJ, Fortune 500) -- should keep their sterling credit rating.


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