Fannie Mae's and Freddie Mac's stock prices have lagged behind the S&P 500 and the growth rate of their mortgage portfolios this year, but analysts say the shares could rebound.

Indeed, with concerns over Asian economies driving investors to companies with little foreign exposure, the stocks have had an upswing in recent days. Fannie Mae was trading at $62.1875 at midday on Tuesday, up from $58.875 last Thursday. Freddie Mac was at $47, up from $44.188 last Thursday.

Fannie and Freddie's stocks have been slower performers because of some profit taking earlier in the year, the agencies' lack of involvement in mergers and acquisitions, the ongoing concern of margin contraction, and sudden weakness in the bond market, said Thomas O'Donnell, senior analyst at Salomon Smith Barney.

Though these factors have kept their stocks from high-speed growth, Fannie, Freddie, and thrifts are generally expected to benefit because they are not exposed to Asia. "They're well insulated from credit concerns and international concerns," Mr. O'Donnell said.

Salomon Smith Barney's target prices for the next 12 to 18 months are $75 for Fannie Mae and $56 for Freddie Mac.

Both Fannie and Freddie are building their portfolios of retained loans and mortgage-backed securities at a rapid pace, said Jonathan E. Gray, principal at Sanford C. Bernstein & Co.

Mr. Gray, noting that the balance sheet generates 65% to 75% of earnings for the two companies, predicted that Freddie's balance sheet would grow 22% this year, and Fannie's would gain 15%.

Yet the balance sheet growth is producing declines in net interest rate margins, Mr. Gray said.

"Both companies showed a fairly sharp contraction," he said. But Fannie Mae, he said, has shown a further decline of its net interest margin into April.

Mr. Gray predicted that at Fannie Mae, net interest margins will be 103 to 105 basis points by the fourth quarter, representing a "fairly sharp decline." In 1997, Fannie Mae's net interest margins averaged 117 basis points. During the first quarter of 1998 the average was 114, and in April it was 110.

Fannie and Freddie have enormous appetites for volume to feed their balance sheet growth, Mr. Gray said. Of the more than $340 billion in loans originated during the second quarter, over 50%-$175 billion-will be sold to Fannie and Freddie, Mr. Gray said.

With rallies in the bond market and a flat yield curve, additional pressure is brought to bear on spreads. And the agencies are getting below- average spreads on the mortgages they buy, dampening investor enthusiasm, Mr. Gray said.

But the outlook for earnings growth is "quite robust" for this year and next, provided that interest rates remain relatively stable and that there is a normalization of the yield curve, Mr. Gray said.

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