The grandfather clock in Franklin D. Raines' office evokes the grandeur of an old-fashioned finance firm, but its steady ticking could just as aptly represent the rising pressure on Fannie Mae to stay ahead of the times.

In the nine months since Mr. Raines became chairman of the largest buyer of home loans, its share price has ticked steadily lower, as investors worried about how it will fare in the face of rising interest rates and increasingly organized political opposition. At issue is whether Fannie can safely expand in a mature mortgage market without overstepping the bounds of its government charter, which specifies that it provide liquidity for home lending.

On Thursday, Mr. Raines unveiled the latest initiative in his campaign to cultivate new business: the Timely Payment Rewards Mortgage. The program is intended to help people with slightly impaired credit get loans that qualify for purchase by Fannie Mae, rather than turn to the more expensive subprime loan market.

"Our bottom line is we want to be the secondary market outlet of choice for everybody in the primary market," Mr. Raines said in a recent interview. "We will be the market leader."

Fannie Mae has a responsibility "to pull potential borrowers into the lower-cost market that we serve," Mr. Raines said Thursday, estimating that half of the market now considered subprime has A-minus credit and could qualify for the new loan. Fannie's risk-assessment technology enables the company to "more precisely identify a borrowers risk of defaulting," he said.

Mr. Raines also announced that the Fannie Mae Foundation has embarked on a credit education campaign, complete with national television advertisements and infomercials, to educate consumers about the relationship between credit history and obtaining housing at a decent price.

In the recent interview with American Banker, Mr. Raines said he wants to accomplish two goals by the end of his first year. First, in keeping with the company's mission, is hitting targets related to its trillion-dollar affordable housing initiative and the affordable housing goals enumerated by the Department of Housing and Urban Development, its mission regulator.

And on the financial side, Fannie plans to deliver earnings-per-share growth to match or exceed the 13.6% EPS growth of the past five years. Mr. Raines also reiterated a vow to increase Fannie's share of the single-family mortgage market to 28%, from 23%.

Achieving both of these goals largely depends on maintaining good relations with lenders, and Fannie presented its new program as a way to increase their business. "This is going to, we hope, permit lenders in the conventional market to serve a much wider range of customers and not refer them to the subprime market," Mr. Raines said.

Fannie already has signed up 26 lenders for the new program, including some, such as Fleet Mortgage, Irwin Mortgage, and FT Mortgage, that will offer the product this month. Such big lenders as Cendant Mortgage and Resource Bancshares Mortgage Group Inc. are expected to offer it later this year.

Borrowers would pay 2 percentage points less than they could typically obtain in the subprime market, and would be guaranteed a further 1 percent drop in rate after making two years of timely payments.

Mr. Raines noted that Fannie's drive for market share includes not only new products, but special arrangements that allow lenders to use their own underwriting systems if they agree to sell the bulk of their loans to Fannie Mae.

Fannie and Freddie have each forged a series of such alliances this year, each claiming partnerships with some of the biggest lenders. And Mr. Raines said Fannie is poised to formalize the "de facto alliances" it has with medium-sized and smaller lenders.

Mr. Raines also took some potshots at FM Watch, an association of trade groups formed this year to guard against forays by Fannie and Freddie outside the bounds of their charters. The group portrays the mortgage buyers as a duopoly that operates without competition -- and with the advantage of an implied guarantee on their debt.

Mr. Raines, who routinely dismisses the group as "the coalition for higher mortgage costs" said it "has made no impression on Congress whatsoever on any issue. I think they are a full employment organization for lobbyists and PR people."

"Fannie Mae only buys mortgages that lenders offer to sell us," he said. "So if they have complaints that lenders are selling us too many mortgages, they ought to go and talk to the lenders. Fannie Mae's job is to operate a secondary market that reduces costs for consumers. If they have an idea of something that will cost consumers less, they should let people know."

Though his public posture is one of disdain for the new groups, Mr. Raines gets good marks from some industry leaders for his private efforts to keep peace. Angelo R. Mozilo, chairman and chief executive officer of Countrywide Credit Industries Inc. credits him for making "every attempt to try to mediate the differences that currently exist in the industry." It is "very hard to meander through this minefield and not step on a mine from time to time."

The top executives at Fannie Mae and Freddie Mac are well compensated for dealing with the complexities of the job. Mr. Raines total direct compensation for 1999, including estimated present value of stock option grants, is projected to be about $14.4 million. In 1998, Leland C. Brendsel, the chairman and chief executive officer for Freddie Mac, received total direct compensation, including estimated present value of stock option grants of about $5.9 million.

So far this year, Fannie Mae's stock has fallen 15% as of Thursday's close. . Freddie Mac's stock is down 19% for the year. In comparison, the S&P 500 is up 4.3%. On Thursday, Fannie's stock gained $1.3125, closing at $62.6875. Freddie's stock rose 69 cents and closed at $52.

Analysts expect Fannie Mae to deliver on its promises to shareholders. Mr. Raines is "a smart, tough, conceptual thinker," who galvanized his company with his earnings goals, said Thomas O'Donnell an analyst for Salomon Smith Barney. He expects that Fannie's efforts to move into new asset classes and to use risk-based pricing will enable the company to meet its financial targets.

Jonathan E. Gray, an analyst with Sanford C. Bernstein & Co. Inc. said that Fannie and Freddie have both built market share "quite meaningfully," and that this year 51% of all newly originated mortgage loans will be sold to Fannie and Freddie, up from 46% last year. Fannie, which Mr. Gray estimates to control about 57% of the conventional secondary market, is buying not only a wider variety of loans but also nontraditional assets such as Ginnie Mae mortgage-backed securities, and securities backed by home equity and manufactured housing loans.

"As we perform, the stock will respond as well," Mr. Raines said. Mr. Raines maintains that Fannie will have a strong finish this year. "Freddie Mac's moves earlier this year were interpreted by the market as a market share grab, and some investors no doubt were concerned about that," Mr. Raines said. "But I think people will see now that the competition over the partnerships is winding down, that it will have no material effect on our performance this year."

As the clock in Mr. Raines' office ticks toward 2000 -- and the first anniversary of his taking office -- new challenges are sure to emerge. He said he has focused on four responsibilities: preparing for the future, weighing future investments, visiting with customers, and spending time with Fannie Mae staff to insure that "everybody is operating from the same playbook."

"Each one of those I could have spent all my time on since I took over," he said. "Instead, I've been spending a third of my time on all four of them."

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