Fannie Mae released the details of its September month-end duration position last Thursday, disclosing a positive one-month duration gap. The figure was down from Fannie's August results of positive four months. Analysts from US Bancorp Piper Jaffray cited improving delinquency rates and credit losses, which remained at under one basis point, for the duration gap results.

The GSE's total book of business, comprising its retained portfolio as well as net MBS, grew at a 16.2% compound annual rate in the second quarter of this year and reached $2.128 trillion. US Bancorp analysts are forecasting mortgage portfolio growth of 16% and outstanding MBS growth of 17.6% for this year. For next year, they are projecting a 14% and 11.5% growth for portfolio and MBS growth, respectively. Analysts said that their estimates consider a sharp drop in the net interest margin to 1.06% at year's end and 0.99% in 2004, offsetting the dip in the margin with a lower debt repurchase.

Fannie's retained mortgage portfolio reached $917.2 billion at Sept. 30. This is a 12.9% increase from $812.5 billion at June 30. But US Bancorp was quick to point out that Fannie's outstanding commitments plunged to $29.6 billion from $101 billion at Aug. 31, owing to the extremely large volume of loans that closed in the September quarter. Also, existing opportunities in the marketplace to add new product have not been attractive recently.

In terms of the collateral securing the mortgage portfolio, credit quality is still "superb" with appreciating home values creating strong collateral. US Bancorp said that low LTV ratios, ample equity positions in the collateral backing the mortgage portfolio, as well as the conservative use of credit enhancement and mortgage insurance helped manage credit-related losses throughout the year, though losses and delinquencies are expected to increase marginally.

US Bancorp also addressed the political risk that the agency faces. "It seemed a foregone conclusion that oversight of the GSEs will transfer to the Treasury, but many different groups have their own agendas and no one plan has garnered support," wrote analysts. They mentioned that the Treasury still wants control over products and capital standards, delaying the decision making to 2004 because of lack of support.

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