Top executives at Fannie Mac told investors and analysts that the agency will continue to increase its earnings at a steady pace despite volatile interest rates and falling loan volumes.

Speaking to the New York Society of Security Analysts, James A. Johnson, chairman and CEO of the government-sponsored agency, said Fannie would build its earnings by maintaining strong portfolio growth.

So far this year, the agency, formally the Federal National Mortgage Association, has purchased $6.5 billion in Remic tranches of its own mortgagebacked securities for its mortgage portfolio, Mr. Johnson said.

This is the first time that Fannie Mac has purchased such large volumes of its own securities. The strategy has helped it ride out the shrinking volumes

in the primary market.

The agency's security purchases have made up to 5% of the portfolio's loan growth this year, Mr. Johnson said. Fannie Mae's loan portfolio has grown by about 17% so far this year.

He also said the agency believes the shrinkage in the primary market, and the heated competition for loans from thrifts and banks is temporary.

"Once rates stabilize the ARM share typically declines, a higher proportion of newly originated ARMs are sold in the secondary market, and ARMs in the portfolios of depository institutions find their way into the secondary market after their initial rates have adjusted," Mr. Johnson said.

"Each of these developments, when they occur, will benefit us," he said.

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