In their August summaries released last week, Freddie Mac and Fannie Mae reported negative growth in their retained portfolios of 6.8% and 7.3%, respectively. These leave their respective ending balances at $707 billion and $726.8 billion. This follows an 18.6% contraction in July for Freddie Mac, while Fannie Mae's portfolio grew less than 1% in that month. Year-to-date, the retained portfolio growth stands at -0.6% for Freddie Mac and -0.2% for Fannie Mae. For purposes of the GSEs' agreement with the Office of Federal Housing Enterprise Oversight regarding portfolio growth, Freddie Mac estimates its total retained portfolio stands at $702.8 billion, little changed from July, while Fannie Mae's is about $723 billion, versus $724 billion in July.

In comments from Barclays Capital following the release of Freddie Mac's monthly summary earlier in the week, analysts observed that, traditionally, the change in GSE portfolios has gone hand-in-hand with the move in the current coupon OAS to agency debt, with a one-month lag. So when the OAS widens, the GSE portfolios tend to grow and vice versa. "That relationship has broken down in recent months," analysts said. "Even as the agency OAS widened, Freddie continued to reduce its portfolio, providing proof that the portfolio cap has led to significant changes in its investment behavior."

The other highlights from the GSEs' monthly summary reports include Freddie Mac reporting its total mortgage portfolio growth was 8.9% compared to 4.3% in July. Year-to-date, the annualized growth rate is 8.4%. Fannie Mae reported its book of business grew at an annualized rate of 7.3%, up from 2.5% in July. Annualized growth stands at 6.8%.

Freddie Mac also reported its net mortgage purchase agreements were $3.3 billion, which is up slightly from $2.6 billion in the previous month. Meanwhile, Fannie Mae reported net retained commitments of $6.8 billion from just under $6 billion.

Within the retained portfolio, holdings of Freddie Mac securities declined $3.9 billion, following a similar drop in July. Meanwhile, non-Freddie Mac mortgage-related securities were up just slightly at $0.4 billion. Holdings of Fannie Mae securities fell to $321 billion compared to $327 billion previously. As a percentage of the portfolio, Fannie securities represent 44.2%, while non-Fannie Mae holdings represent 55.8%. For Freddie Mac, 51% of its portfolio is in Freddie securities.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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