Lower loan management costs and a rise in fee income offset slower portfolio growth for Fannie Mae and Freddie Mac in the second quarter, allowing the companies to post record results.

Freddie Mac's net income was $340 million for the second quarter and $669 million for the first half, according to figures released yesterday. This compares with $309 million and $610 million, respectively, for the same periods a year ago and was in line with analysts' estimates.

Fannie Mae, in earnings issued last week, also met the Street's estimates, reporting net income of $752.7 million for the second quarter and $1.5 billion for the first half, compared with $667.8 million and $1.3 billion, respectively.

Improved loss mitigation efforts and other cost savings programs "offset the effects of a cyclical slowdown in portfolio growth," said Freddie Mac chairman Leland Brendsel.

Both Mr. Brendsel and Fannie Mae chairman James Johnson cited their companies' competitive strengths and said they will continue to produce strong, profitable portfolio growth and meet Wall Street expectations.

Analysts agreed that the companies are well positioned. "They are being patient and settling for slower portfolio growth," said Gary Gordon, who follows the companies for PaineWebber Inc.

Indeed, illustrating the sluggishness of new growth, Freddie Mac bought just $26 billion of mortgages in the second quarter, compared with $36 billion the same period a year ago, analysts said.

"But over the long term, it will be very difficult for anyone to compete with them," Mr. Gordon said.

Right now Fannie and Freddie are avoiding bidding wars with hedge funds and other aggressive purchasers of mortgage assets, Wall Street traders said.

The companies "are emphatic about not cutting their mortgage prices and becoming irrational," said E. Gareth Plank, a mortgage analyst in San Francisco for UBS Securities. "They'll be back in the market when conditions are more favorable."

Fewer mortgages are available to buyers right now because of lower originations this year. At the same time, lenders are holding mortgages on their books longer-instead of immediately selling them to Fannie Mae and Freddie Mac-because of the stable rate environment.

But rates will shift, making it less attractive for banks and hedge funds to hold mortgage assets, and this will create renewed opportunity for Fannie Mae and Freddie Mac, Mr. Gordon said.

The companies also continue building programs, such as supporting loans to people with tarnished credit, which will offer favorable yields, analysts said.

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