In the midst of a swirl of negative GSE-related news last week, Freddie Mac added to the commotion by reporting a decrease in its retained portfolio. However, the GSE's total mortgage portfolio showed some signs of growth.

Freddie's retained portfolio shrank 11.1% in January after a 6% decline in the last two months. Retained portfolio purchases also dropped to $14.5 billion in January from $18 billion in December. Meanwhile, its retained portfolio purchase agreements - considered an indicator of the pace of the Freddie's portfolio growth in the near term - were net $12.2 billion in January, decreasing from $17.1 billion in December.

Freddie's total mortgage portfolio, which represents the sum of its investments as well as MBS issued by the Agency, increased 7.8% and reached $1.5 trillion at the end of January. Other data disclosed were an 8.2% annualized increase in total PCs and structured securities issued.

Both Freddie Mac and Fannie Mae have been limiting their purchases in the past few months due to tougher regulatory oversight as well as some unfavorable market conditions.

Market observers said that the decline in GSE portfolio might be a cause for some concern, the impact of which is felt more in these companies' equity.

Interest rate risk remains positive. The GSE's average duration gap, which measures the mortgage portfolio's sensitivity to interest rate changes, was zero months in January in contrast to negative one month in December.

Copyright 2005 Thomson Media Inc. All Rights Reserved.

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