As mortgage loan volume continued to plummet in October, Fannie Mae and Freddie Mac suffered a "spasmodic contraction'' in portfolio growth, according to an analyst at Sanford C. Bernstein & Co.
What's more, said Jonathan Gray, an analyst at New York-based Bernstein, the companies' declines last month will continue through the fourth quarter. He estimated that Fannie's retained portfolio growth will be 13.6% in the fourth quarter and 25.6% for the year. For Freddie those numbers will be 12.7% and 27.2%, he said. 
Mr. Gray's findings echo a recent report by Prudential Securities that said Fannie and Freddie's portfolios have grown about 23.5% this year, down from 39.4% in 1998. The companies have purchased $273.5 billion of mortgage-related securities and liquidated $111.3 billion in 1999, the report said.
The biggest factor in the decline has been the end of last year's refinancing boom, which was fueled by homeowners' taking out new loans to lock in low interest rates.
In the third quarter, about 22% of conventional mortgage applications were for refinancings, versus 49% in the year-earlier period and 27% in the second quarter, according to a refinancing study by Freddie Mac.
Mr. Gray said Fannie and Freddie bought $380 billion of loans in the first quarter - $165 billion to purchase homes and $215 billion for refinancing.
Fourth-quarter estimates point to a dramatic reduction in originations purchased by Fannie and Freddie - to $240 billion, from $410 billion in the year-earlier period. Only $20 billion of that will be for refinancings, Mr. Gray said. And he predicted there will be only $190 billion of originations in the first quarter of 2000, with refinancings accounting for only about 10% to 12% of that volume.
Fannie's and Freddie's purchase volume has shrunk steadily this year: In the first quarter the two secondary-market agencies bought $214 billion. They bought $173 billion in the second quarter and only $150 billion in the third quarter, Mr. Gray said.
Prepayments are much slower than expected, given the level of mortgage rates, the analyst added. He estimates that Fannie and Freddie's fourth-quarter purchase volume will total $113 billion - the weakest level since $96 billion of combined purchases in the fourth-quarter of 1997.
Freddie Mac's third-quarter study focuses on refinancings in which Freddie purchased both the original loan and the new one. It shows that an increasing number of borrowers with 30-year fixed rate loans chose to refinance into 15-year fixed-rate mortgages. Fifty-five percent of borrowers who refinanced selected 30-year fixed-rate mortgages, and 33% refinanced into 15-year mortgages, versus 31% in the second quarter.
Sixty percent of Freddie borrowers with 15-year fixed-rate mortgages refinanced into the same mortgage in the third quarter, down from 68% in the second quarter. About one-third of homeowners with 15-year fixed-rate mortgages refinanced into 30-year mortgages.
Among borrowers with adjustable-rate mortgages, the most popular refinance package remained the 30-year fixed-rate mortgage, - 53% chose that option. In the second quarter 61% of borrowers with adjustable-rate mortgages refinanced into 30-year fixed-rate mortgages.
