annual rate of 35.5% in August, reflecting $21.1 billion of mortgage purchases.
That increase and the government-sponsored enterprise's $17.7 billion of net commitments to purchase mortgages bode well for mortgage bankers looking to sell a wider variety of loans on the secondary market, Fannie Mae chairman Franklin D. Raines told investors at a Merrill Lynch conference.
Much of Fannie Mae's August growth came from new business segments, said Thomas O'Donnell, an analyst at Salomon Smith Barney. "They're able to capture attractive yields in the more illiquid areas of the market and the newer asset classes," he said, "plus they're able to profit from (rate) volatility."
Lenders noted that rising interest rates have changed their origination business.
"Our mix has shifted dramatically from fixed-rate to adjustable-type product," said Peter L. Struck, first vice president and manager of the treasury division at Washington Mutual in Seattle. Though Fannie and Freddie Mac have been "very consistent in their pricing and their appetite for product," he said, "new originations, especially fixed-rate originations, are trending down."
Mr. Raines, who is also chief executive officer of Fannie Mae, said the company's mortgage portfolio, its biggest source of income, which had been averaging 17.9% annual growth, has increased at a 29% rate this year but will slow to the mid-teens to high teens. Fannie "has plenty of room to grow" by expanding its business in the mortgage debt market, which now represents 40% of the nation's $12 trillion housing market, Mr. Raines said. It owns or guarantees about 23% of U.S. mortgage debt and plans to expand its market share to 28%, he said.
"Fannie Mae is going to occupy a large space within this growing mortgage debt market," Mr. Raines told his audience. The company now has 43% of the 30-year fixed-rate and adjustable-rate mortgages outstanding but plans to "bump up" its investment in adjustable-rate mortgages, he said.
Fannie Mae is also benefiting from demand for loans larger than its limit of $240,000, because lenders are offering customers financing by combining conforming mortgages and second mortgages and selling the conforming mortgages to Fannie.
The company's other emerging growth opportunities include further penetration into the secondary market for FHA and VA mortgages. So far this year Fannie has purchased $16 billion of government loans, up from $6 billion in 1998, Mr. Raines said. Mr. Raines also said Fannie has strategies to help families with poor credit obtain conventional loans. He estimates that close to 50% of borrowers in the subprime market are "just a notch below qualifying for a low-cost Fannie Mae mortgage."
Mr. Raines said the new growth areas will enable Fannie to equal or top in the next five years its average annual per-share earnings growth in the past five, 13.6%. At the least, that would nearly double the per-share figure.
Shares of Fannie Mae, Freddie Mac. and other financial services companies have been in the doldrums this summer. Fannie Mae was trading Monday afternoon at $61.8125, off 16.4% from yearend 1998.