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RECENT DEVELOPMENTS
On August 11, 2008, Standard & Poor’s Ratings Services (“S&P”) announced that our “Risk-to-the-Government” rating was being reduced from “A+” to “A” with a negative outlook, our preferred stock rating was being reduced from “AA-” to “A-” with a negative outlook, and our subordinated debt rating was being reduced from “AA-” to “A-” with a negative outlook. S&P also affirmed the “AAA/A-1+” rating on our senior unsecured debt with a stable outlook.
On August 8, 2008, Moody’s Investors Service (“Moody’s”) affirmed that our Bank Financial Strength Rating of “B-” and preferred stock rating of “A1” remained under review for possible downgrades. Moody’s also affirmed ratings of “Aaa” on our senior long-term debt, “Prime-1” on our short-term debt and “Aa2” on our subordinated debt with stable outlooks.
On July 17, 2008, Fitch Ratings (“Fitch”) downgraded our preferred stock rating one notch to “A+” from “AA-”. Our preferred stock rating remains on Rating Watch Negative until further evaluation. Fitch affirmed ratings of “AAA” on our senior unsecured debt and “AA-” on our subordinated debt.
On July 30, 2008, President Bush signed into law the Housing and Economic Recovery Act of 2008 that included GSE regulatory reform legislation. The legislation establishes the Federal Housing Finance Agency (“FHFA”) as our new safety, soundness and mission regulator, replacing OFHEO and HUD for this purpose. In general, the legislation strengthens the existing safety and soundness oversight of the GSEs, providing FHFA with safety and soundness authority that is comparable to and in some respects broader than that of the federal bank regulatory agencies. For example, FHFA will have enhanced powers to raise capital levels above statutory minimum levels, to regulate the size and content of our portfolio, and to approve new mortgage products. The legislation also increases the financial and administrative cost of our affordable housing mission.
In addition, the legislation includes provisions that were initially proposed by the Treasury Secretary that (i) authorize the U.S. Treasury to buy Fannie Mae’s debt, equity and other securities, subject to our agreement; and (ii) give the Chairman of the Board of Governors of the Federal Reserve System a consultative role in our regulator’s process for setting capital requirements and other safety and soundness standards. Both of these provisions lapse at the end of 2009.
