S downgrades Fannie and Freddie, U.S.-backed debt

Standard & Poor’s Ratings Services today 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. All the downgrades were from AAA to AA+. S&P says the agencies and banks all have debt that is exposed to economic volatility and a further downgrade of long-term U.S. debt. Their creditworthiness hinges on the U.S. government’s ability to pay its own creditors. Today’s downgrades of the mortgage giants Fannie and Freddie reflected their “direct reliance” on the U.S. government, S&P said. Fannie and Freddie own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans whose total worth exceeds $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+.