Fannie Boosts Earnings 12.2%; Beefing Up Portfolio Helped

A big jump in Fannie Mae's mortgage portfolio fueled a 12.2% rise third-quarter earnings.

The total was $775 million, up from $690.6 million a year earlier. Per- share earnings rose 14%, to 72 cents.

Nine-month earnings were up 30.2%, to $2.62 billion.

"We had significant rebounds in the growth of both our mortgage portfolio and total business," said chief executive James Johnson in a prepared statement.

The company's mortgage portfolio grew more than 13% during the three months ended Sept. 30, versus a 7.4% average rate during the first half.

Fannie Mae bought significantly more seasoned mortgage products this quarter, a company spokesman said.

In addition, commercial banks were more eager to sell off recently originated mortgages this quarter, he said, and Fannie Mae was able to match the execution of private securitizers because of market conditions.

Fannie Mae commitments to buy portfolio loans nearly doubled during the third quarter, said Lawrence M. Small, president and chief operating officer.

This quarter the company began an Alternative A program, which lends to borrowers who did not meet its traditional lending guidelines.

The program also contributed to the rise in portfolio lending, a spokeswoman said.

Fannie also cut its provision for losses in half, to $20 million.

Analysts greeted the earnings increase warmly. Steven Eisman of Oppenheimer & Co. upgraded the company from "market perform" to "outperform," while Smith Barney analyst Thomas O'Donnell reiterated his "buy" rating.

Loan chargeoffs fell during the quarter, to $5.6 million, in part because of stepped-up loss mitigation efforts, Fannie said.

The company repurchased 11.0 million shares of common stock in the quarter, down from 11.7 million shares during the second quarter.