Sinking mortgage rates and a temporary cease-fire in Fannie Mae's Capitol Hill skirmishes have taken the company's stock on a high-octane ride, leading some analysts to recommend that investors take their feet off the accelerator.

Last week two analysts downgraded Fannie equities, saying the upward movement of Fannie's share price is limited, making the stock less attractive.

Gary Gordon of UBS Warburg downgraded Fannie from "strong buy" to "buy," and David Graifman of Keefe, Bruyette & Woods lowered the stock from a "buy" rating to "outperform."

"We believe it's going to go up, and it's probably a good one to have in portfolio, but it's not particularly the time to be jumping in very aggressively," Mr. Graifman said, noting that Fannie is up 59% since his firm initiated coverage on Sept. 6.

Mr. Gordon said of his move, "It's entirely price-based."

Mortgage rates, which peaked in May and have slid steadily to 17-month lows last week, have helped push several mortgage-related stocks up sharply in the past six months.

Countrywide Credit Industries Inc. of Calabasas, Calif., is up 110% since March, Washington Mutual of Seattle is up 150% since March, and Oakland, Calif.-based Golden West Bancorp is up 147% in the same time. Freddie Mac has also fared well following Fannie's stock romp; its shares have shot up 63% since September.

In addition to the favorable rate environment, some relief from regulatory pressure has added to the government-sponsored enterprises' market appeal.

Since early March, Fannie has been embroiled in hearings with congressional critics who have sought to tighten regulation of Fannie and Freddie. Both companies' stock prices seesawed during the hearings, but since the brouhaha subsided in late September, they have soared.

Fannie and Freddie also got a boost from a compromise both companies made on Oct. 19 with congressional critics by which they agreed to meet additional disclosure requirements and to issue subordinated debt.

Both political developments helped boost Fannie's shares, which closed at $87 Thursday, up 80.5% from September.

The two analysts insisted that the change in their stock rating does not reflect a cooling in their assessment of Fannie's strength and value.

"If anything, lower interest rates and a soft landing are a better environment for Fannie's earnings growth," so the current economic conditions are actually favorable for Fannie going into next year, Mr. Gordon said. He added that Fannie could earn $4.95 per share next year.

Mr. Graifman said Fannie has "great" management, which has done a great job of mitigating credit and interest rate risks through counterparty agreements and hedging. "Fannie should continue to hit the targets," he said. "Right now I have them growing at 14% for next year. We have no change in our view of Fannie Mae" as a company.

Mr. Graifman said that he could see investors taking the price higher, but it is not a stock his company will push; his 2000 target is $93.50 and his 2001 earnings estimate is $4.85.

"I can certainly envision it getting higher, particularly right now where there are concerns in the marketplace about bank earnings. People who are seeing interest rates go down and might want to invest in financials, if they want to do it in any size, have to invest in Fannie and Freddie," Mr. Graifman said.

Mr. Gordon added, "When the stock is hot, nobody likes to get off."


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