S&P Does Not Anticipate U.S. 'AAA' Credit Rating Changing As A Result Of The GSEs.

NEW YORK  Sept. 2, 2008--The 'AAA' long-term rating on the U.S. is not likely to change as a result of the deteriorating credit condition of Fannie Mae and Freddie Mac or from the increased likelihood of their requiring direct government assistance, according to a report published today by Standard & Poor's Ratings Services. The report, entitled "Credit FAQ: What Could Change Our 'AAA' Credit Rating on the U.S. Government?", followed Standard & Poor's announcement Aug. 26 that it had lowered its risk-to-the-government ratings on Fannie Mae and Freddie Mac to 'A-' from 'A', the subordinated debt ratings on both to 'BBB+' from 'A-', and preferred stock ratings to 'BBB-' from 'A-', while affirming these government-sponsored entities' (GSEs') senior debt at 'AAA' (for more information, please see "Fannie Mae Sr. Debt Rating Affirmed At 'AAA/A-1+'; Other Ratings Lowered, On CreditWatch Neg.," and "Freddie Mac Sr. Debt Rating Affirmed At 'AAA/A-1+'; Other Ratings Lowered, On Watch Negative," both published Aug. 26, 2008, on RatingsDirect).

"Although the dislocations in the housing market have hurt the credit standing of Fannie Mae, Freddie Mac, and the entire U.S. financial system, we believe the U.S.'s credit strengths balance these weaknesses," said Standard & Poor's credit analyst Nikola Swann. These strengths include a high-income economy, and flexible product and labor market; the use of the dollar as the key international currency; fiscal room to maneuver; and strong and long-established institutions with transparency in policy making. "So long as these fundamental strengths remain in place, we do not expect direct assistance to GSEs, including Fannie Mae and Freddie Mac, to alter our rating or stable outlook," Mr. Swann added.

The report answers frequently asked questions concerning contingent liabilities from these and other GSEs, and the importance of these potential costs relative to other factors we consider when analyzing the credit quality of the U.S. government. It also provides our latest estimates of the greatest upfront fiscal costs the U.S. government could face in a stress test scenario of a recession worse than that of the 1970s, a scenario well beyond our current range of forecasts.