Fannie Mae reported significantly slower, 2.1% annualized growth in the firm's gross mortgage portfolio, totaling $892.7 billion. This is versus June that saw a 19% annualized growth. Analysts attribute the slowing portfolio growth to tight spreads in mortgages as well as considerably less triple-A floater purchases.

"Growth in the mortgage portfolio was consistent with guidance that mortgage to debt spreads continue to be tight and that growth would likely be driven more by lower liquidations during 2H04," said Prudential Equity Group, LLC.

Meanwhile, the GSE also disclosed that its outstanding MBS grew at a 2.9% annualized rate to $1.36 trillion, versus 5.3% growth in June. Net yield for newly acquired mortgage assets last month stayed flat from June at 4.44%.

Fannie also reported that portfolio prepays slowed sequentially to an annualized rate of 26.2% in July versus almost 31% in June. MBS outstanding saw a drop as well in liquidations to 27.6% in July compared to 32% annualized in June. The GSE's duration gap was zero for the month compared to being (positive) two in June. Merrill Lynch said this implies the firm's exposure to interest rate volatility is still controlled. Analysts added that credit risk remains fairly benign as well.

"In our opinion, Fannie Mae's uninspiring performance was generally anticipated," analysts wrote. "Portfolio growth remains elusive due to relatively tight mortgage spreads, though interest rate risk appears contained." Analysts noted that the GSE's retained commitments dipped significantly in July to$19.5 billion compared to $29 .7 billion in June. This is reflective of the backup in mortgage production seen recently in the primary mortgage market that has affected the secondary market as well, analysts added.

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