Fannie Mae plans to begin a large-sized callable debt program this month.

Franklin D. Raines, Fannie's chairman and chief executive officer, said in London last week that the callable Benchmark notes would help the company manage interest rate risk on its $433 billion mortgage portfolio.

The new program is an outgrowth of the demand the company has seen for its noncallable debt offerings, known as Benchmark notes. Since the program was begun in January 1998, domestic and international investors have bought $61.92 billion of the noncallable debt as Treasury surrogates.

Fannie is initiating the program in response to investor interest in "liquidity, consistency, transparency of pricing, and active secondary market trading" in callable funding, Mr. Raines said.

The company plans to issue or reopen a callable note each month with a minimum issue size of $500 million and a minimum reopening size of $100 million, he said. Investors will be able to choose from five-year securities that will be noncallable for the first two years or first three years, in addition to 10-year securities that will be noncallable for the first three years or five years.

Fannie Mae and Freddie Mac's decisions to reduce mortgage insurance requirements could create a greater risk of losses on securities backed by jumbo mortgages, Moody's Investors Service said.

In March, both the government-sponsored enterprises reduced mortgage insurance requirements-in Fannie's case, for borrowers approved by its automated underwriting system-to the level prevailing before an increase imposed in 1994, and they cut requirements for other insurance.

Moody's said in a market comment that competitive pressure is likely to force mortgage insurers to offer the reduced insurance option for jumbo loans as well. Reducing the level of mortgage insurance coverage shifts the burden of any loss to the loan holder, the report said.

The rating agency said it would require greater credit enhancement for securities backed by jumbo loans that carry the lesser mortgage insurance.

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