The Federal National Mortgage Corp. reported a gain of 17% in earnings per share, to 63 cents, for the third quarter. The number was about in line with Wall Street's expectations.

Nevertheless, securities analysts were pleased by the report. Thomas O'Donnell of Smith Barney & Co., New York, raised his 12-month earnings target for Fannie Mae shares to $38, from $34. Early Friday, the stock was trading at $36.375, up 50 cents.

At Sanford C. Bernstein & Co., New York, analyst Jonathan Gray called the earnings strong and said there were some minor developments that could prove significant. "Credit losses were down from a running rate of $50 million or $55 million to $42 million," he said. "The smaller chargeoffs make the company's current reserve position stronger, and will permit it to make smaller additions to reserves in future years, thereby augmenting earnings-per-share growth."

Mr. Gray said the reason for the decline in chargeoffs was an effective loss-mitigation program that over the last two years has reduced the red ink from foreclosures.

He said he continued to estimate next year's earnings at $2.80 a share but added that the number might be conservative and $2.85 to $2.90 was possible.

Fannie Mae chairman James A. Johnson said the increases for the quarter came in all categories of revenue and were achieved despite a slight drop in mortgage volume.

He also noted that Fannie had completed the issuance of $1 billion of preferred stock with a final installment of $250 million. The shares were issued as part of a capital restructuring. He said the changes give the company "a stronger, more efficient, and diversified capital base."

Fannie's regulator, the Office of Federal Housing Enterprise Oversight, is expected to ask Fannie Mae and Freddie Mac to bolster their capital when it completes development of risk-based capital standards next spring.

Lawrence M. Small, Fannie's president, said the improved earnings per share in the quarter stemmed from these factors:

*The decline in credit losses.

*Higher net interest income.

*Higher income from guarantee fees.

*Smaller losses on the call or repurchase of debt.

*A reduction in shares outstanding as part of the recapitalization.

Mr. Small noted that the $15.7 million reduction in chargeoffs on single-family foreclosures came despite a rise in the number of properties foreclosed because the average loss per property fell.

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