The mortgage portfolios of Fannie Mae and Freddie Mac grew briskly in August on attractive purchase opportunities. And Freddie increased its upper estimate of growth this year by $5 billion, to $50 billion.

Freddie's portfolio has grown by $42.4 billion for the year so far, bringing it to $206.9 billion at Aug. 31. Fannie's portfolio has grown by $50.9 billion, to $367.2 billion.

"The agencies must be seeing very attractive pricing," said Jonathan Adams, vice president and senior analyst at Prudential Securities, New York.

A lot of sellers are in the market now, he said, because "as rates decline, it shakes a lot of mortgage securities loose from hedge funds and other entities that no longer want to take the prepayment risk."

Freddie's portfolio had a 25% annualized growth rate in August; Fannie's, 24%.

Freddie Mac's numbers are "essentially double what they were projecting at the beginning of the year," said Thomas O'Donnell, senior analyst at Salomon Smith Barney, New York. "Their credit quality continues to improve as well."

Freddie's credit quality is its strongest since early 1991, Mr. O'Donnell said. Delinquencies of 90 days or more were at 50 basis points of the portfolio in July, he said, down from 53 in June.

Multifamily loans delinquent 60 days or more were at 72 basis points, down from 81 in June and from 148 a year earlier.

The reduction in delinquency rates was attributed to an overall improvement in the housing market, including the turnaround in California and improvements in loss mitigation and underwriting standards, Mr. O'Donnell added.

Freddie's estimate of up to $50 billion in portfolio growth this year may be conservative, he said, since its growth has averaged $5.3 billion a month after liquidations through August.

Mr. O'Donnell's estimates of earnings per share at Freddie Mac are $2.28 for 1998 and $2.63 for 1999.

Though Freddie has "fast-improving credit quality," Mr. O'Donnell said, Fannie has "rock solid credit quality."

In addition to rapid growth in their mortgage portfolios, both companies are enjoying "wide mortgage-to-Treasury spreads," Mr. O'Donnell noted. But the margin at both companies should decline by about a basis point per month, he added.

At Fannie, both mortgage purchase commitments and mortgage-backed securities issuance rose in August, according to a call note on the company's stock by Mr. O'Donnell.

Fannie's mortgage purchases last month totaled $14.3 billion, down from $17.3 billion in July. August commitments to buy mortgages totaled $16.8 billion, up from $12.8 billion in July. Commitments foreshadow portfolio growth.

August was the eighth consecutive month in which commitments exceeded $10 billion, Mr. O'Donnell said.

His earnings estimates for Fannie Mae are $3.20 a share for 1998 and $3.60 for 1999.

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