Monday, May 19, 2008

S&P won’t downgrade Fannie

There was some big news in the housing market Monday afternoon. Negotiators in the Senate Banking Committee agreed on a deal that will expand the Federal Housing Administration’s power to refinance troubled mortgages and give the companies a new, more powerful regulator. Many market players, such as BlackRock (BLK) chief Larry Fink, have held out hope that a legislative response will ease the pain of the housing bust. While this plan won’t solve the housing problem in itself, it could offer another half-step on the long road toward a solution.

“The bill addresses the root of our current economic problems - the foreclosure crisis - by creating a voluntary initiative at no estimated cost to taxpayers which will help Americans keep their homes,” Sen. Christopher Dodd said in a statement, Reuters reported. The plan is due to come to a vote before the Senate banking panel tomorrow.

Rating agency S&P also took Fannie Mae’s (FNM) debt and preferred stock ratings off watch for a possible downgrade, though it cut its risk-to-the-government rating to A-plus from double-A-minus and maintained a negative outlook on most of its ratings. “Fannie Mae is facing the most challenging housing and mortgage cycle in more than three decades, and at a time when its core earnings are weakened both from higher credit-related expenses and significant spread widening on both agency and nonagency mortgage-backed securities,” S&P wrote. “Given the highly stressed housing and mortgage markets, it is very unlikely that the outlook would return to stable before 2009.”

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