Credit Easing Boosts Freddie And Kin

Further loosening of credit by the Federal Reserve System this week has quickened the upward momentum in shares of government-sponsored agencies.

The Federal National Mortgage Association and Federal Home Loan Mortgage Corp., as the dominant providers of liquidity for the nation's home finance market, are early beneficiaries of lower rates.

So is the Student Loan Marketing Association, which buys and services federally backed college loans from banks.

Investors' heightened enthusiasm for interest rate-sensitive government agencies often presages good news for banks, which could start benefiting from lower rates later in the third quarter, according to analysts.

|Big Moves' Simmering Down

Since June 30, shares of Fannie Mae are up 20.4% and those of Freddie Mac are up 12.1%, while stock of Sallie Mae has risen 25.2%. Thursday, Fannie was at $59.25, off 37.5 cents, Freddie was at $89, down $1.25, and Sallie was at $65.875, off 12.5 cents.

"We are seeing some profit taking after the big moves these stocks have had, as the rest of the market is shifting down a notch on economic expectations," said one analyst.

In the first half, significantly lower short-term rates raised rates of return on the huge mortgage portfolios held by Fannie Mae and Freddie Mac. Meanwhile, somewhat lower longer-term rates stirred the biggest wave of home mortgage refinancing since 1987.

Conservative Estimates

Most analysts continued to rate Fannie as a strong buy. "The stock is cheap at 9.2 times our 1992 earnings per share estimate," said Peter Treadway, a bank and thrift analyst at Smith Barney, Harris Upham & Co.

Mr. Treadway expects Fannie to earn $5.65 a share next year and said his 18-month price target for Fannie, which he regards as conservative, is $75 a share.

But Gary Gordon, thrift industry analyst at PaineWebber Inc., recently lowered his rating on Fannie to neutral from buy.

"The words come hard," said Mr. Gordon, who recommended the stock for five and a half years.

But Mr. Gordon's research shows Fannie at a 20-year valuation peak. His own price target for the stock has been $55.

PHOTO : Upward Bound Source: DB Technology Inc., Reuters

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