Freddie Mac earned $468 million in the fourth quarter, 26% more than a year earlier.

Per-share earnings rose 17%, to 62 cents, 2 cents better than expected.

The company said its mortgage portfolio grew 15% in 1998, to $733 billion. Mortgage purchases and issuance of mortgage-backed securities totaled $89 billion in the fourth quarter, up 85.4% from the same period a year earlier.

"Loan volume was higher than anticipated," said Jonathan Adams, vice president and senior financial services analyst for Prudential Securities.

Net interest income was slightly lower, because of shrinkage in the net interest margin, Mr. Adams said. Much of the shrinkage, however, reflected reclassification of the expense associated with Freddie's subsidiary real estate investment trusts, he added.

During the fourth quarter, Freddie changed its reporting of preferred stock ownership interest and dividends associated with these subsidiaries. The company said the change had no effect on net income but reduced net interest income on certain assets.

Freddie's fourth-quarter mortgage chargeoffs totaled $18 million, down 71% from the same period in 1997.

Mr. Adams said he is upbeat about both Freddie and its larger rival, Fannie Mae, for the long-term.

"We think both stocks are cheap. We've got a strong buy on both," Mr. Adams said.

Fast prepayment, which hurt Fannnie and Freddie in the fourth quarter, will slow down in the current one, he said.

Fannie's net interest margin, which like Freddie's slipped last year, will return to the Sept. 30 level, Mr. Adams predicted.

To compensate for the slippage, he noted, Fannie and Freddie increased their acquisition volume, expanding their portfolios. Stabilized margins will translate into more profits for Freddie, he said.

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