Fannie Mae & Freddie Mac
Moody’s has cut the preferred stock ratings:
FANNIE AND FREDDIE PREFERRED STOCK RATINGS CUT BY MOODY’S TO BAA3 FROM A1;
AFFIRMS AAA SENIOR DEBT RATING
- BFSR cut to D+ from B-
- Preferred stock ratings and BFSRs remain on review for potential downgrade
Yields on FNMA/Freddie Mac preferred stock is already signalling that the dividend will be omitted.
The common stock is now a lottery ticket for people who either hope there will be some equity left after a Federal bailout, or who have lost so much already that they are holding on in hopes of some kind of turnaround.
The big mystery coming up next month is whether or not they will be able to roll over approximately $250 BILLION of debt that comes due in September 2008, or whether the Feds will have to somehow help fund it. Spreads on FNMA/Freddie Mac paper vs. Treasury paper reflects sentiment that there is no nervousness over the risk of this paper. Watch this spread as an indication of what the smart money is DOING rather than saying, and expect some serious jawboning from Treasury and Fed representatives designed to assure a smooth rollover.
Since the government has and continued to direct Fannie Mae and Freddie Mac to lend to potential homeowners to improve the ownership percentage of US citizens how can they then take over the company and wipe out the preferred shareholders looking for a yield in retirement who are not part of the governments direction and stewardship of Fannie Mae and Freddie Mac. Why should we be penalized in our retirement as the government keeps bailing out others. The government instituted this with poor direction and oversight and we the retired having faith in these quasi government companies have been dessimated. The government also said they were in good shape prior to taking over Fannie Mae and Freddie Mac as Paulson stated in a television speech. He said they had adequate reserves. Please respond, thank you