Fannie mortgage portfolio grows 2.3%

Fannie Mae’s portfolio of home loans and bonds grew at 2.3 per cent annual rate last month as federal regulators seized control of the mortgage-finance company.

The portfolio rose by $1.4 billion to $761.4 billion, after expanding at a 3 percent pace in August, the Washington-based company said in a statement today. Freddie Mac last week said its portfolio contracted by $24 billion to $737 billion in September, after falling $37.4 billion the previous month.

Fannie’ s slowing growth and Freddie's shrinkage came during the month in which as the US took over the companies amid concern that potential additions to their $14.9 billion in net losses over the previous four quarters would limit their mortgage bond purchases and drive up loan rates. A jump in the companies’ borrowing costs this month is now hindering their buying.

Fannie and Freddie “demand remains weak, as mortgages continue to trade tighter” than their corporate debt, Matthew Jozoff, a mortgage bond analyst at JPMorgan Chase & Co. in New York, wrote in an October 28 report.

Fannie and Freddie, the largest US mortgage-finance companies, seek to profit by financing purchases of mortgage assets with cheaper debt, and by charging fees to guarantee bonds created out of pools of loans. Congress chartered the companies to expand homeownership and provide market stability.

Yesterday, Fannie said that it may write down at least $20 billion of deferred tax credits, potentially cutting its book value in half and increasing the likelihood the U.S. Treasury will need to pump cash into the company.

The “serious delinquency” rate rose to 1.57 per cent in August among single-family loans that Fannie either owns or guarantees within bonds, the company said. The rate is up from 0.71 per cent reported for August 2007 and 1.45 per cent in July.

When announcing the US takeover of Fannie and McLean, Virginia-based Freddie on September 7, Treasury Secretary Henry Paulson said he would direct the firms to increase their portfolios and start a program in which his department buys their home-loan bonds to help lower the cost of home financing.