UPDATE 2-S&P says GSEs may pose risk to US government rating

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NEW YORK, April 14 (Reuters) - Standard & Poor's Ratings Services said on Monday that the risks the government-sponsored enterprises, or GSEs, pose to the U.S. government's triple-A debt rating are far greater than those posed by broker-dealers.

In a deep and prolonged recession, the maximum potential cost of assisting the GSEs, together with loans and guarantees extended by U.S. government agencies, yields a potential fiscal cost to the government of up to 10 percent of GDP, S&P said in a statement.

The recent rescue of ailing Bear Stearns BSC.N highlighted the potential risks associated with supporting the broker-dealer segment of the U.S. financial system, S&P said, adding that the GSEs pose a far greater fiscal risk to the government's rating.

The maximum potential cost of assisting the broker-dealer sector remains small relative to the size of the economy, at below 3 percent of GDP, S&P said.

A U.S. Treasury spokeswoman declined to comment on the S&P report.

Fannie Mae (FNM.N) and Freddie Mac (FRE.N) are shareholder-owned, GSEs charged by Congress with supporting the housing sector by keeping money flowing in the mortgage market.

To do this, they sell debt and use the proceeds to buy mortgages from lenders, which then gives lenders the funds to make more loans. The loans are then repackaged into securities for sale to investors.

Fannie Mae and Freddie Mac also hold loans and securities in their portfolios, which are monitored by a federal regulator.

"We examine these potential costs to come to relative judgments between actual debt stocks and potential debt stocks, and between one government and another," John Chambers, chairman of Standard & Poor's sovereign rating committee, said in the statement.

Even in a scenario of severe stress, the contingent fiscal risks of broker-dealers will not threaten the U.S. government's triple-A rating, he said.

"However, under such a scenario, the size of the GSEs, coupled with their current level of common equity, could create a material fiscal burden to the government that would lead to downward pressure on its rating," Chambers noted.

In a separate report on Monday, S&P said that to aid balance-sheet growth and access the most illiquid mortgage-market segments, Fannie Mae's and Freddie Mac's capital surplus ratio was recently reduced to 20 percent from 30 percent.

The "conforming jumbo mortgage" lending limit was also increased to a maximum of $729,750 until the end of the year.

These moves follow a period that saw GSEs' market share of newly originated mortgages skyrocket to 76 percent in the fourth quarter of 2007 from 46 percent in last year's second quarter, S&P said. That market share ticked up to 80 percent for January 2008, it said.

"The mortgage GSEs face heightened demand to provide mortgage financing, which comes at a time when their need to raise capital and improve earnings has placed them under extreme pressure against the backdrop of historically weak housing markets and seized securitization markets," Victoria Wagner, a Standard & Poor's credit analyst, said in the statement.