S&P cuts Fannie, Freddie pfd stock and govt ratings

NEW YORK, Aug 11 (Reuters) - Standard & Poors on Monday slashed the preferred stock ratings of Fannie Mae and Freddie Mac, and said the mortgage funding giants presented a greater risk to the government.

The rating company cut the ratings after the two companies reported increased credit losses for the second quarter, and following creation of a new regulatory structure that places subordinated debt and preferred stock investors at a disadvantage.

Preferred stock and subordinated debt ratings for Fannie Mae (FNM.N) and Freddie Mac (FRE.N) were downgraded three notches to "A-" from "AA-."

Fannie Mae's risk-to-the-government rating was lowered to "A" from "A+," while the designation for Freddie Mac was cut to "A" from "AA-," according to S&P. The rating measures a company's creditworthiness without government support.

"The lower risk-to-the-government rating reflects the company's worsening financial profile, which is pressured by the continued home price declines in some of its key markets, higher credit-related expenses, and capital challenges," Victoria Wagner, an S&P analyst said in a statement.

Higher operating losses and capital concerns are also behind the downgrades for Freddie Mac, Wagner said in a separate statement.

Cuts to subordinated debt and preferred stock ratings follow legislation that gives powers of receivership to their new regulator. Receivership could put non-senior creditors at a greater risk of nonpayment, especially dividend payments on preferred stock, S&P said. (Reporting by Al Yoon; Editing by Jonathan Oatis)