Keeping pace with Fannie Mae, which released record third-quarter earnings last Wednesday, Freddie Mac reported record earnings of its own Tuesday.

Freddie's earnings rose 15% from the year-earlier period, to $645 million, or 86 cents per diluted common share, beating analysts' consensus estimate by 1 cent. David W. Glenn, Freddie's vice chairman and president, credited "strong portfolio growth and excellent credit results."

The government-sponsored enterprise's mortgage portfolio overall, including on- and off-balance-sheet assets, passed $900 billion in the quarter. Mortgage loans Freddie holds in portfolio rose 2.42% from the year-ago period, to $57.04 billion, and the mortgage-backed securities it holds rose 17%, to $304.6 billion.

Kenneth A. Posner, an analyst with Morgan Stanley Dean Witter, said it was a "quality quarter" for Freddie, whose earnings growth matched Morgan Stanley's long-term forecast.

"What most impressed us in the quarter was the decline in interest rate risk within the portfolio," he said. "The number of days during which Freddie's portfolio could be expected to show even a small loss from a rapid and adverse change of 50 basis points in interest rates declined markedly" from calendar 1999.

Freddie is showing strong earnings growth, "so the message is that earnings are not coming at the expense of higher risk," Mr. Posner said.

Thomas O'Donnell, an analyst with Salomon Smith Barney, said Freddie beat his per-share earnings estimate by 1 cent because of "a marked improvement in already very solid credit quality," which reduced its expenses for selling foreclosed properties.

William Stephens, Freddie's vice president of shareholder relations, said officials at the enterprise feel comfortable it will continue to show strong growth.

"We have a good business model" consisting of "lowering our cost of funds and reaching more homeowners, and the market will provide us with opportunities to keep doing that," he said. "In addition, we're running very low levels of risk. That gives you a good platform to grow from."

Chargeoffs dropped 62.5%, to $6 million, and annualized third-quarter credit losses, a combination of chargeoffs and expenses from selling foreclosed properties, fell to 0.8 basis points of the mortgage portfolio.


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