The stocks of Fannie Mae and Freddie Mac were downgraded Tuesday by Steven Eisman, a CIBC Oppenheimer analyst, in response to formation of an industry coalition that seeks to limit the two companies' expansion into new business lines.

He gave both companies "hold" ratings, down from "strong buy."

"For the first time in many years," he said in a report, "political issues will dominate these stocks" and "could plague the stock prices of both companies for all of 1999." Activities that "carry the agencies beyond a pure secondary market role" include Freddie's experiments in the home equity market and Fannie's expansion into the manufactured housing market, he added.

The two companies "now touch on too many industries for those industries to just stand still like potted plants," he said. "These industries are almost certainly going to fight, and that movement is only in its early stages."

A spokesman for Fannie Mae said the company does not discuss "individual analysts' assessments of Fannie Mae." Freddie Mac did not immediately return a call seeking comment.

Mr. Eisman said his main concerns do not stem from the risk-based capital guidelines proposed by the Office of Federal Housing Enterprise Oversight-Fannie's and Freddie's financial regulator-but from the emerging "rein-in-the-agencies movement" trying to guard against any expansion of the GSEs' business areas.

The movement by lenders and others, in response to what they view as "charter creep" by Fannie and Freddie, is "new and gaining strength," Mr. Eisman wrote. The continuation of this movement has led him to see "little upside in either stock," he said.

But other analysts have optimistic views of these stocks. Bruce W. Harting of Lehman Brothers, with a "buy" rating for both companies, said the two are "trading at their low points for the year," offering an "entry point for the balance of the year."

Fannie's stock closed at $68.8125 on Wednesday, down 0.54% from Tuesday's close. Freddie's stock closed at $57.5625, up 1.21%.

As for the formation of a coalition, Mr. Harting said he regards it as "the North American Mortgage Treaty Organization, as opposed to some kind of strike force that is aiming to hit at the basic business of Fannie or Freddie."

He said he expects the companies to report successive earnings gains for each quarter of 1999.

The two analysts also differed in their interpretation of the recent partnership between Freddie Mac and Norwest Mortgage Inc., under which Norwest will sell Freddie all its loans in exchange for Freddie's allowing Norwest to use its own automated underwriting system and providing better prices for guarantee fees. Mr. Eisman said a price war could emerge in the industry, but Mr. Harting said the alliance reflects Norwest's "exercise of technology independence."

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