Moody's sees Fannie, Freddie privatization plan as 'credit negative'

Sept 9 (Reuters) - Moody’s Investors Services believes the U.S. Treasury Department’s proposal to bring Fannie Mae and Freddie Mac out of conservatorship raises their credit risk as it would shrink their role in U.S. housing market.

The Treasury said last Thursday the government should draw up a plan to begin recapitalizing the mortgage finance agencies, while calling on Congress to act on comprehensive housing reform.

“If implemented, proposals to reform the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, would be credit negative for the companies’ creditors,” the rating agency said in a report released on Monday.

The government seized control of the two GSEs during the 2008 financial crisis with a $191.5 billion bailout.

“We believe the conservatorship enhances the credit market’s confidence in the GSEs, strengthens the GSEs’ corporate governance and increases the likelihood of federal backing,” Moody’s analysts wrote in the report.

A release from conservatorship without legislation would be credit negative for GSEs’ creditors, the analysts said.

Moody’s analysts, meanwhile, said the Treasury’s proposal, if implemented, would level the playing field for private guarantors of mortgages and improve the credit quality of GSE credit-risk transfer securities.

Reporting by Richard Leong