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Wednesday, November 21, 2007

Behind Freddie and Fannie's Free Fall: Rating agencies and Subprime crisis

November 20 2007
Ratings agencies chimed in: Fitch Ratings and Standard & Poor's Ratings Services both warned that they may cut Freddie's AA- credit rating on its preferred stock. Analysts slashed ratings and investors trounced share prices as the home financiers posted huge third-quarter losses. Like other companies involved in the mortgage business, Freddie Mac and Fannie Mae have seen their share prices suffer amid the subprime crisis. But that was nothing compared to what happened Nov. 20. Investors punished the shares of the home finance giants after Freddie posted a surprising—and disturbing—third-quarter loss of $2 billion and warned that it was having trouble meeting its regulatory capital requirements and may need to cut its dividend in half to raise capital reserves.

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