Fears of growing political and interest rate risk were behind two days of sharp price declines for Fannie Mae and Freddie Mac stock, analysts say.

Shares of Fannie Mae fell 8.2% from last Thursday's close to Monday's, to $68.6875. Freddie fell 9.8%, to $57.875.

(The shares recovered some ground in early trading Tuesday. At midday Fannie was up 2.2% and Freddie 1.2%.)

The two government-sponsored enterprises "are getting a hit that's not commensurate with the rest of the sector," said Thomas O'Donnell, senior analyst at Salomon Smith Barney.

He said that rate risk, more than political uncertainty, seemed to drive the decline.

Last week Fannie Mae came to market with $4 billion in noncallable debt. Freddie Mac is expected to bring $3 billion this week, and the Federal Home Loan banks also are expected to issue debt, raising concern over widening spreads, Mr. O'Donnell said.

Last week's bond market slide, he said, has "spooked people into believing the spread between Treasuries and mortgages may be narrowing," which would make mortgages less attractive.

Profit taking may have contributed too. Fannie Mae's stock rose 30% in 1998, and Freddie Mac's 54%. Some investors may have shifted to underperforming stocks, Mr. O'Donnell said.

Sources in Washington said the Office of Management and Budget has included a budget provision to privatize Ginnie Mae, eventually creating a third government-sponsored enterprise that would compete with Fannie Mae and Freddie Mac. Concern may be mounting over the scheduled February release of risk-based capital guidelines by the Office of Federal Housing Enterprise Oversight.

Political storm clouds loom.

There is "a higher level of political risk than we've seen in a couple of years," said Jonathan E. Gray, principal at Sanford C. Bernstein & Co.

That risk is coming from "deterioration in the relationship" between Fannie and Freddie and mortgage insurers, he said. Lenders are aligning on the insurers' side, he added.

In a research note, Mr. Gray called the situation "potentially dangerous" and said that even if Fannie and Freddie succeed in deflecting the challenge, it could hurt the companies' valuation.

The report called Fannie's and Freddie's stocks "moderately attractive," assuming per-share growth of 13% for Fannie Mae and 15% for Freddie Mac over five years.

There were no new developments at Freddie Mac, and the company's fundamentals remain strong, with its stock holding a strong "buy" recommendation, said Cindy Gertz, vice president of shareholder relations at Freddie Mac.

"Profit taking doesn't seem out of the realm of possibility," she said, adding that the bond market had not performed well over the last few days.

Asked about institutional investor uneasiness over the issues circulating in Washington, Ms. Gertz said, "Political risk will always introduce some level of volatility into our stock price performance."

Jayne J. Shontell, senior vice president for investor relations at Fannie, also cited portfolio restructuring, but she dismissed political risk. Every year the budget process brings forward an issue involving Fannie Mae, she said.

"There's nothing fundamental that has changed about the Fannie Mae story," she said. "Fannie's 1999 outlook is excellent."

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