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S&P Ratings Affrims Fannie Mae and Other GSEs Ratings;

May 7, 2004

Finds Outlook Stable

NEW YORK (Standard& Poor's) May 6, 2004--Standard& Poor's Ratings Services said today that it affirmed its 'AAA/A-1+' ratings on the senior long- and short-term debt of Fannie Mae, Freddie Mac, the consolidated obligations of the Federal Home Loan Bank System, and the consolidated obligations of the Farm Credit System Banks; as well as the 'AA-' ratings on the subordinated debt and preferred stock of Fannie Mae and Freddie Mac, and the 'AA-' risk to the government ratings on these two government-sponsored enterprises (GSEs). It also assigned stable outlooks to the long-term senior debt of all of these entities, and stable outlooks on the subordinated debt and preferred stock of Fannie Mae and Freddie Mac.

The 'AAA/A-1+' senior debt ratings now and going forward incorporate a larger emphasis on the financial condition of these GSEs than had previously been the case. Historically, Standard& Poor's had based its ratings on this debt primarily on the policy framework that supported the creditworthiness of these securities. "In Standard& Poor's view, the policy framework and a strong governmental consensus of support for the senior unsecured debt holders of GSEs had led to the highest degree of confidence that the government would ensure full and timely payment on these securities, even if the entities themselves got into financial difficulties. We no longer have the same degree of confidence that the Government would ensure full and timely payment on the senior unsecured debt of these GSEs," said Standard& Poor's credit analyst Michael T. DeStefano. Accordingly, it now more fully incorporates the financial condition of these entities as a driver of the 'AAA/A-1+' ratings, along with any support that they may merit due to their continuing policy role and their links to the government.

What this means as a practical matter is that, provided the financial condition of these entities remains strong, the 'AAA' ratings may be maintained even if there is some loosening of their ties to the government. Conversely, even if the policy framework does not change, the ratings could be lowered given material deterioration in the financial condition of any of the GSEs. By making this change, Standard& Poor's analytics for the GSEs have come closer into line with the way the vast majority of the government-related entities that it rates around the world are rated, where the rating reflects both support and financial factors.

Copyright (c) Standard& Poor's

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