WASHINGTON -- Fannie Mae's chairman, Jim Johnson tried to calm investors who fear its earnings will be hit by the current decline in interest rates.

He told securities analysts last week that the Federal National Mortgage Association's earnings per share will grow at a double-digit rate regardless of interest rate changes. Fannie expects rates to rise as much as 50 basis points by yearend, he said.

But most of Mr. Johnson's remarks on the subject were designed to show that the company has weathered recent refinancing waves and could do so again.

In recent weeks its stock has slipped almost to a 1993 low. It traded last week at about $77.

The fall reflects the market's concern that with interest rates going so low so fast," the interest margin on Fannie's portfolio of loans will fall too far for the company to offset it by growing the portfolio and other income, explained Paul Paquin, senior vice president for investor relations, in a later interview.

Key to Profitability

The loan portfolio accounts for about one-quarter of Fannie's business but generates over half its net income. It is key to Fannie's profitability.

Mr. Johnson pointed out that half of the company's $142 billion of long-term outstanding debt is now callable. In addition to the long-term debt that will mature by 1995, Mr. Johnson said, the company should be able to retire or reprice more than $78 billion in 1993, 1994, and 1995.

In the event of a new refinancing wave, this would allow Fannie to call or retire this debt as borrowers prepay and get new lower-priced debt instead. That would help alleviate some of the pressure on interest margins on Fannie's portfolio loans.

While falling rates bleed high-interest loans from Fannie's portfolio business, they also yield earnings opportunities.

Low rates present attractive opportunities to grow the loan portfolio, Mr. Johnson said, and Fannie expects higher portfolio growth for the rest of the year.

Mr. Paquin explained that the high volume of refinancings drives down the price of the loan for Fannie, and increases the margin between the price of the loan and the price of the debt Fannie incurs to buy it.

Higher Fee Income

Low interest rates also lead to higher fee income from real estate mortgage investment conduits and higher float income as securities payments increase, Mr. Johnson said. The company can use fee income to retire high-cost debt, he said.

One analyst questioned Mr. Johnson on Fannie Mae's low-income housing mandate and the impact of those loans on the company's charge-off or loss ratio. Mr. Johnson said the company has found that the loans in a $10 billion affordable lending program he inititated have higher credit quality than in Fannie's overall book of business.

He said Fannie believes it can meet Department of Housing and Urban Development goals for low- and moderate-income lending and a more targeted special affordable" goal.

An inner-city lending goal will be "a stretch," he said.

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