Fannie Mae and Freddie Mac reported second-quarter earnings in line with analysts' expectations despite a decline in net interest margins. Bolstering the performance were some record-breaking levels of business.

"It's clear that both agencies are taking advantage of the available supply in the market to help offset the decline in that margin," said Jonathan Adams, senior financial services analyst at Prudential Securities.

Though Fannie and Freddie have no operational risk overseas, they "can look upon the world in a global way and fund globally," said Thomas O'Donnell, senior analyst at Salomon Smith Barney. With other currencies now weaker than the dollar, the two government-sponsored enterprises "can raise money at a more attractive rate," he said.

"Both saw very good performance with regard to loss severity on loans in their portfolio," Mr. Adams said. Fannie and Freddie are benefiting from rising prices and a very strong economy, he added.

Fannie set three records with its earnings:

It bought a record $44 billion of mortgages for its portfolio, up from $28.4 billion in the first quarter and $14.4 billion in the second quarter of 1997.

It issued a record $83.9 billion of mortgage-backed securities, up from $58.3 billion in the first quarter and $30.4 billion a year earlier.

Its mortgage commitments reached a record $45.1 billion, up from $36.7 billion in the first and $11.7 billion a year earlier.

Earnings totaled $848 million in the quarter, up 13% from a year earlier; the per-share rise was from 69 cents to 80 cents. First-half earnings were $1.67 billion, or $1.58 a share, up from $1.49 billion, or $1.37.

Net interest income was $1.03 billion in the second quarter, down from $1.04 million in the first and $970.4 million in the second quarter last year.

Fannie's fees and other income totaled $79.5 million, an increase of $24 million from the first quarter, because of increases in structured transaction fees, multifamily fees, technology services fees, and lower operating losses from tax-advantaged investments.

Credit-related losses from foreclosed property expenses and loan chargeoffs dipped to $69.4 million, from $77.6 million in the first quarter.

Freddie had a "very high level," of callable debt on the company's balance sheet, at 91%, up from 77% last year, Mr. Adams said.

Net income totaled $414 million, up 5% from the this year's first quarter and 22% from the second quarter of 1997. Per-share earnings set a record-56 cents, up from 45 cents in the same period last year.

Revenues totaled $881 million, up 9% from a year earlier and 1% from the first quarter.

The company said its mortgage investments and securitization business led to strong second-quarter performance, with the retained portfolio growing by $11 billion. Freddie expects the retained portfolio to reach $40 billion to $45 billion by yearend.

Freddie's net interest income on earning assets was $535 million, up from $514 million in the first quarter and $460 million a year earlier.

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