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Fannie Purchases Up, Balance Sheet Delayed

Fannie Purchases Up, Balance Sheet Delayed

March purchases $59 billion

April 20, 2004

By staff

Fannie Mae’s monthly business volume broke a 6-month descending trend and rose 16%. Meanwhile, the company released Monday its first quarter financial results minus the balance sheet, which raised speculation that the behemoth was trying to delay bad news.

In its latest monthly summary, Fannie reported business volume was $59.1 billion last month, up from February’s $50.8 billion. In March 2003, the reported total was almost double at $108.8 billion.

Fannie’s business volume had been decreasing since September, and the uptick comes on the heels of comments from its own economists and trade groups that industry production would pick up in the second quarter.

The latest business volume was composed of $38.9 billion in mortgage backed securities (MBS) acquired by others and portfolio purchases of nearly $20.3 billion — which jumped 66% from the prior month, the mortgage giant reported.

Fannie said the average duration gap on its mortgage portfolio was zero, breaking from negative one, where it’d been at for four consecutive months.

Both the conventional single-family and multifamily delinquency rate — reported on a one month lag — were unchanged from February at 0.61% and 0.24%, respectively, Fannie said.

The Washington, D.C.-based secondary lender reported today in its quarterly earnings release that its first quarter net income declined 2.1% from the same quarter last year to nearly $1.9 billion, or $1.90 a share.

While a balance sheet would usually accompany the quarterly earnings press release, the company startled investors by omitting the statement. The stockholders’ equity and its subparts on the sheet “has become significantly more complicated — taking additional time to ensure the integrity of data is both prudent and appropriate,” according to an emailed statement from Fannie.

Spokesman Jason Lobo said the company decided to disclose this information in quarterly SEC filings, which calls for an approximate three-week delay, to take advantage of the additional time they are allowed to report the data.

Lawrence Kam, a critic of Fannie who is chief executive officer of investment firm Sonic Capital, said that the information delay suggested “they have something to hide,” reported the online edition of the Wall Street Journal.

Fannie said it can provide a “more appropriate context” for the disclosure of the balance sheet data as the SEC filings contain broader and more detailed information than the earnings press release, allowing for “an appropriate assessment of our balance sheet measures and how they should be interpreted in the context of our overall results of operations and financial condition.”

Kam said that he believed the balance sheet would show a big decline in shareholders’ equity, according to WSJ. Due to an earlier regulatory filing, he reportedly believed Fannie “had hedged itself mainly against a rise in interest rates during the first quarter.” He said that before interest rates rebounded this month they declined and slashed the value of many of Fannie’s derivatives.

However, an analyst of Bear Stearns & Co., David S. Hochstim, said that “it’s disappointing not to have the information in the release but their explanation for the delay seems reasonable,” WSJ reported.

The change follows a statement earlier this month from Fannie regulator OFHEO, or the Office of Federa

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