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Reports: Fitch May Downgrade Fannie, Freddie

A failure by lawmakers to slash $1.2 trillion from the national debt spurred ""Fitch Ratings"":http://www.fitchratings.com/web/en/dynamic/fitch-home.jsp to place U.S. debt on negative outlook Monday, a move that immediately hit GSEs ""Fannie Mae"":http://fanniemae.com/portal/index.html and ""Freddie Mac"":http://www.freddiemac.com/ by association.

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The ratings agency revised a stable outlook for debt held by Fannie and Freddie to negative, even while it reaffirmed AAA-ratings in place for the GSEs.

It cited an earlier statement issued by the Obama administration that pledged continuing support for the GSEs as the reason why it needed to assign negative outlooks to Fannie and Freddie.

Stefanie Johnson, a spokesperson for the ""Federal Housing Finance Agency"":http://www.fhfa.gov/, the agency charged with regulating the GSEs, could not be immediately reached for comment.

The revised outlooks for Fannie and Freddie follow the decision by Fitch Monday to place U.S. credit ratings under negative review, which it tied to the failure of the Joint Select Committee on Deficit Reduction (JSCDR) last week.

""The failure of the JSCDR underlines the challenge of securing broad-based consensus on how to reduce the out-sized federal budget deficit,"" Fitch wrote Monday.

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The 12-member JSCDR ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô frequently called the ""super committee"" for its ability to bypass a host of congressional rules ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô made headlines last week when sitting lawmakers from both houses of Congress announced their failure to meet a minimum requirement under the 2011 Budget Control Act.

Fitch wrote that ""failure to reach agreement in 2013 on a credible deficit reduction plan and a worsening of the economic and fiscal outlook would likely result"" in a future downgrade of U.S. credit ratings by the agency.

More concern from Fitch arrives on the heels of ""Standard & Poor's"":http://www.standardandpoors.com/home/en/us controversial decision to reduce U.S. debt ratings to AA-minus in August ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a move that immediately reduced credit ratings for Fannie, Freddie, and 10 Federal Home Loan Banks, and helped unsettle the financial markets over the next several weeks.

Multiple news reports suggest that Fitch will likely downgrade credit ratings for the U.S. federal government, along with Fannie and Freddie.

Without intervention from lawmakers, the ratings agency wrote, federal debt could leapfrog GDP by 90 percent over the next 10 years, with more than 20 percent of tax revenue owed to debt interest alone.

""[S]uch a level of government indebtedness would no longer be consistent with the U.S. retaining its ├â┬ó├óÔÇÜ┬¼├ï┼ôAAA' status despite its underlying strengths,"" Fitch wrote. ""Such high levels of indebtedness would limit the scope for counter-cyclical fiscal policies and the US [sic] government's ability to respond to future economic and financial crises.""

Past sources speaking with _MReport_ speculated that less confidence in U.S. Treasury debt - and the GSEs - could result in wider Treasury yields, raising borrowing costs by extension.

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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