WASHINGTON - Fannie Mae widened its lead in market share over rival Freddie Mac in 1994, amid fierce competition for adjustable rate mortgages.

Fannie Mae, formally the Federal National Mortgage Association, garnered almost 57% of the roughly $288 billion in loans sold to the two government- sponsored giants last year.

In 1993, Fannie Mae captured 55% of the $548 billion in loans sold to the two agencies.

From quarter to quarter, there were much wider swings in market share between the two agencies.

For example, Freddie Mac's share of the agency market reached a two-year low in the third quarter. Freddie Mac, formally the Federal Home Loan Mortgage Corp., captured only 37% of loans sold to the two agencies in the period.

David Andrukonis, senior vice president at Freddie Mac's seller division, attributed the swings to shrinking loan volume and competition between the agencies for adjustable rate loans held in the portfolios of banks and thrifts.

In 1993 "if we lost a deal to Fannie or they to us, it got lost in the mammoth numbers" of current origination, Mr. Andrukonis said.

But with current production down, "one portfolio transaction can drive the (market share) numbers way up and way down," he said.

The portfolio transactions in question were ARM swaps with large West Coast thrifts.

Donna Callejon, senior vice president of mortgage-backed securities and marketing at Fannie Mae, said her agency had done between $6 and $8 billion in ARM swap deals in the second half of 1994.

Mr. Andrukonis said Freddie Mac did about the same.

In a swap, the thrift exchanges its whole loans for securities backed by Fannie or Freddie. Thrifts then use the securities as collateral to get better terms for funds to make more home loans.

The swap deals became extremely important to Fannie and Freddie in the second half of last year, as they scrambled for new loans in a shrinking market. Rising rates drove down the volume of home loans in 1994 by a third from 1993's $1 trillion.

At the same time, adjustable rate loans became increasingly popular with consumers who wanted to take advantage of low introductory rates. By yearend, more than half of new home loans carried adjustable rates.

But the secondary market agencies were largely frozen out of this business. Thrifts and banks outpriced the agencies on ARMs and then held most of their loans in portfolio.

To get in on the ARM action, Fannie and Freddie wooed depository institutions with "swap" deals. Such deals will continue to be important to both agencies this year as well.

But Mr. Andrukonis said Freddie Mac is "looking at profitability more than market share."

"Some portfolio transactions we are not going to chase, because they are not good deals," Mr. Andrukonis said. Weak credit profiles, for example, might make the deals unprofitable, he said.

Ms. Callejon of Fannie Mae said "there has been plenty of similarity" in the prices the two agencies have been willing to pay in the past year.

Fannie Mae "continues to look at sustaining the 55% to 60% range (of market share) for a very long period of time," she added.

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