July 15 (Bloomberg) -- Fannie Mae and Freddie Mac had their bank financial strength and preferred stock ratings cut by Moody's Investors Service.

The financial strength ratings for each company were lowered to B-, while the preferred stock ratings were cut to A1 from Aa3, New York-based Moody's said in a statement today. Both remain under review. The companies' Aaa senior debt ratings and Aa2 subordinated debt rankings were affirmed with a stable outlook.

Fannie Mae and Freddie Mac shares fell on speculation that a Treasury Department plan to support the biggest U.S. mortgage- finance companies will sacrifice common shareholders. Now Moody's is raising the possibility that preferred stockholders could also lose, saying the companies' diminished ``financial flexibility'' may lead to a potential suspension of preferred stock dividends.

Bank financial strength ratings measure the likelihood a company will need ``extraordinary financial assistance from third parties, such as the government or shareholders.''

Shareholders are at risk from Paulson's plan because the government-chartered companies may require new equity after already raising $20 billion in the past year to cover losses. Washington-based Fannie Mae has slid 79 percent this year, and Freddie Mac, based in McLean, Virginia, has lost 84 percent.

Paulson sought to shore up investor confidence July 13 when he said from the steps of the U.S. Treasury that he will seek authority to buy equity stakes in Fannie Mae and Freddie Mac and increase the government's credit lines to the companies. Last week, their shares fell 50 percent and credit-default swaps on Fannie and Freddie bonds approached record highs.

To contact the reporter on this story: Romaine Bostick in Washington at emoody@bloomberg.net; Caroline Salas in New York at csalas1@bloomberg.net

Last Updated: July 15, 2008 11:49 EDT