Fannie Mae making first global debt issue.

Fannie Mae, seeking to protect its market position and meet customer demands, has jumped into adjustable-rate loans with a new package of mortgages and a hint that its pricing would be attractive.

Lenders welcomed the news and expressed hopes that the pricing would indeed be competitive. Rising interest rates have revived consumer interest in adjustables, putting mortgage banking companies at a disadvantage because of the limited secondary market.

Donna Callejon, senior vice president, said Fannie had already received indications of interest in the new loan configurations from lenders. The loans adjust after three, five, seven, and ten years. The agency, formally the Federal National Mortgage Association, has also introduced a six-month adjustable indexed to the London interbank offered rate.

"There is no question that the resurgence in the ARM market has allowed portfolio lenders to acquire more product," said Ms. Callejon. She expressed the hopes that the product will bring some stability to the fragmented adjustables market.

Small Share of Portfolio

She said the agency's new pricing service for cash purchases "often lenders the opportunity to get Fannie Mae's most aggressive cash pricing for ARMs."

In April, 31% of all conventional loans were adjustables, according to the Federal Housing Finance Board. That's a "sharp increase" over March, when ARMs made up 23% of all conventional loans. But only 5.6% of Fannie Mae's loans were adjustables as of May.

Elaine Ireland, director of product and program management at the Federal Home Loan Mortgage Corp., said she did not expect Fannie's new loan line to significantly impact the adjustables market.

She said Freddie Mac would watch how Fannie's adjustables perform in the secondary market before adopting similaproducts.

Lenders were far more encouraged by Fannie's announcement.

"I am happy about it; I think it gives us some more opportunities," said Gordon Roberts, senior vice president, Huntington Mortgage Co., Columbus. Ohio. "I just hope we can get the pricing we can use."

'Trying to Be Responsive'

Mr. Roberts thought Fannie Mac was "trying to be responsive" to market needs. He hoped that the adjustables market would grow more liquid, with a more consistent source of loans now that Fannie has expanded its role.

Michael Conway, executive vice president, North American Mortgage Co., Santa Rosa Calif., said Fannie Mae had lagged behind in adjustable-rate products over the last two years leaving many lenders without the means to compete with port. folio lenders.

"The market has changed and mortgage bankers need more ARMs," Mr. Conway said.

Tom O'Donnell, a Smith Barney analyst, thought Fannie's action would make more ARMs available in the marketplace.

But "so much depends or pricing," said Albert Kocourek president and chief executive of ricer, Entrust Financial Corp. Columbia, Md. The adjustablerate variations Fannie Mae has offered before "just haven't been that competitive."

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