S&P Downgrades Fannie and Freddie. Are States and Municipals Next?

Standard & Poor's Ratings Services on Monday downgraded the credit ratings of Fannie Mae and Freddie Mac and other agencies linked to long-term U.S. debt. The agency also lowered the ratings for: farm lenders; long-term U.S. government-backed debt issued by 32 banks and credit unions; and three major clearinghouses, which are used to execute trades of stocks, bonds and options. Fannie and Freddie own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans worth more than $5 trillion. As part of a nationalized system, they account for nearly all new mortgage loans. Their downgrade might force anyone looking to buy a home to pay higher mortgage rates. Officials at Standard & Poor's say they will also indicate shortly how local and state governments will be affected by their decision on Friday to lower the long-term U.S. debt from AAA to AA+.