Fannie Mae reported last week that its portfolio commitments rose to a new high of $75.5 billion in June, rising from $73.8 billion in May. This brings outstanding portfolio commitments to a record $134.6 billion at the end of last month.

The high level of commitments was attributed mainly to Fannie Mae's attempt to maintain portfolio growth targets in the midst of high portfolio liquidations. Analysts from JPMorgan Securities said that although the GSE's retained portfolio commitments reached a record in June, most have not settled yet. The firm added that this should bode well for a pickup in retained portfolio growth in the second half of the year. New commitments should also remain solid in the near term, analysts stated.

Meanwhile, Fannie's retained portfolio balance dropped for the second consecutive month at an annualized rate of negative 4.5% last month, in contrast to negative 3.4% in May. Merrill Lynch attributed this drop to strong portfolio liquidations and the company's delay of settlement commitments to take advantage of better pricing in the forward markets. The agency's portfolio growth so far this year also dipped to an annualized rate of 5.6%, which is lower than the mid-teens full-year growth target that Fannie has been hoping to achieve. Merrill said that to reach a 14% annual growth target, Fannie's portfolio has to grow at a 23% annualized rate over the year's second half. With mortgage spreads to agencies having widened by about 15 basis points from the lows seen at the end of May, Merrill also predicts commitments will remain strong and portfolio growth will pick up in the coming months.

In terms of Fannie's duration gap, JPMorgan said that the GSE plans to manage its duration gap more rigorously within its plus or negative six-month range. This is probably the result of the lifting of the supervisory action by the Office of Federal Housing Enterprise Oversight last April, said analysts. Fannie would increase the amount of option-embedded debt to 50% to 60% of its retained portfolio from its traditional level of 45% to 50% (which has been over 70% of late, but mostly of short maturity). This could impact the margin by four to five basis points, depending on the products used, said JPMorgan.

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