The hold-and-sell techniques employed by depository institutions for adjustable-rate mortgages are causing dramatic fluctuations in the volume of ARM-based, mortgage-backed securities issued monthly by government-sponsored enterprises, but those techniques allowed the market to record its biggest issuance month in 21 months during a resurgent September. Total ARM MBS issuance has grown to an estimated one-third of total issuance, according to an Oct. 20 CS First Boston report, which places the share of ARM business in the secondary mortgage market at 32%. First Boston attributed part of that rise to a reversal of August's dramatic drop in Fannie Mae ARM issues. But some analysts believe the reason for Fannies August plunge and its September resurgence lies in how those loans are sold to the GSEs. Fannie, which had seen a steady, six-month climb in ARM issues dating back to February 1994, saw those issues plummet to $494 million in August from a 10-month high of $2.6 billion in July. The First Boston report called the drop puzzling, but Fannie attributed the fluctuation to some sizable recourse ARM deals that it settled in September. Libby Snyder, an analyst in Fannies investor relations department, attributed the significant increase in Fannies monthly ARM issues to depositories selling off large blocks of their ARM originations, a trend she predicted would continue for some time. Others agreed. The depositories have been originating and holding ARMs in their portfolios, said Jim Cotton, vice president of production and program management at Freddie Mac. They'll let [those ARMs] get through their teaser periods, then decide whether they need to beef up [their] liquidity. Includes chart

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