Moody's Investors Service said late Wednesday that it had placed Freddie Mac's Bank Financial Strength Rating (BFSR) on review for a possible downgrade (subscription req'd), citing a concern that the GSE may experience higher credit losses than previously expected. Freddie currently has a BFSR of 'A-,' Moody's second highest rating for the category. Moody's Bank Financial Strength Rating measures the likelihood that a financial institution will require financial assistance from third parties, such as the government or shareholders. In its review, Moody's said it will focus on Freddie Mac's asset quality and the potential that the company may experience an elevated level of credit charges over the near to medium term. Credit stress is most likely to occur in the company's guarantee portfolio, the rating agency said. Moody's will also evaluate the level of loan loss provisioning as well as mark-to-market charges that Freddie Mac is exposed to, and how this would affect the company's capital levels and earnings profile. Other key ratings -- Freddie Mac's Aaa senior debt, Prime-1 short-term, Aa2 subordinated debt, and Aa3 preferred stock ratings -- were affirmed by Moody's with a stable outlook. Nonetheless, even the spectre of a ratings downgrade at one of the GSEs should give market participants pause -- as well as underscore how difficult industry conditions really are. Freddie's shares were down nearly 3 percent in early trading on the New York Stock Exchange, when this post was published. Disclosure: When this post was published, the author held no positions in FRE.