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Credit Ratings
Our ability to access the capital markets and other sources of funding, as well as our cost of funds, are highly dependent on our credit ratings from the major ratings organizations. In addition, our credit ratings are important when we seek to engage in certain long-term transactions, such as derivative transactions.
While there have been no changes in our credit ratings from December 31, 2010 to August 2, 2011, on July 15, 2011, S&P placed our long-term and short-term debt ratings on “CreditWatch with negative implications,” following a similar action on the debt ratings of the U.S. government. A rating being placed on CreditWatch indicates a substantial likelihood of a ratings action by S&P within the next 90 days or is a response to events presenting significant uncertainty to the creditworthiness of an issuer. S&P noted that it placed our long-term and short-term debt on CreditWatch with negative implications due to our direct reliance on the U.S. government. On July 14, 2011, S&P stated that it may lower the long-term debt rating of the U.S. in the next three months if it concludes that Congress and the Administration have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future.
On July 13, 2011, Moody’s placed both the U.S. government’s rating and our long-term debt ratings on review for possible downgrade. Following the raising of the U.S. government’s statutory debt limit on August 2, 2011, Moody’s confirmed both the U.S. government’s rating and our long-term debt ratings, and removed the designation that these ratings were under review for possible downgrade. However, Moody’s revised the rating outlook for both the U.S. government’s rating and our long-term debt ratings to negative. In assigning the negative outlook to the U.S. government’s rating, Moody’s indicated there would be a risk of a downgrade if (1) there is a weakening in fiscal discipline in the coming year; (2) further fiscal consolidation measures are not adopted in 2013; (3) the economic outlook deteriorates significantly; or (4) there is an appreciable rise in the U.S. government’s funding costs over and above what is currently expected.
S&P, Moody’s and Fitch have all indicated that they would likely lower their ratings on the debt of Fannie Mae and certain other government-related entities if they were to lower their ratings on the U.S. government.
We currently cannot predict whether one or more of these ratings agencies will downgrade our debt ratings in the future, or how long our ratings will remain subject to review for a possible downgrade by S&P. See “Risk Factors” for a discussion of the risks to our business relating to a decrease in our credit ratings, which could include an increase in our borrowing costs, limits on our ability to issue debt, and additional collateral requirements under our derivatives contracts and other borrowing arrangements.
Table 33 presents the credit ratings issued by the three major credit rating agencies as of August 2, 2011.
Table 33:  Fannie Mae Credit Ratings
    As of August 2, 2011
    S&P   Moody’s   Fitch
Long-term senior debt
  AAA   Aaa   AAA
Short-term senior debt
  A-1+   P-1   F1+
Qualifying subordinated debt
  A   Aa2   AA-
Preferred stock
  C   Ca   C/RR6
Bank financial strength rating
  CreditWatch Negative   Negative   Stable
    (for Senior Debt)
(for Qualifying
Subordinated Debt)
  (for Long Term Senior Debt and Qualifying
Subordinated Debt)
  (for AAA rated Long Term
Issuer Default Rating)