Fannie Delinquency Rate At 2.96% In Feb Vs 2.77% In Jan

Fannie Mae's (FNM) volume of refinanced mortgages hit a high in March, its largest since 2003.

The mortgage company, which is under government conservatorship, said its refinancing volume perked up to $77 billion as mortgage rates dropped to below 5%, according to a monthly report released Thursday.

Fannie expects a further increase under the Obama administration's Making Home Affordable Program, which widens the eligibility of homeowners for refinancing.

Meanwhile, the mortgage finance company said its delinquency rate continued to rise to 2.96% in February from 2.77% in January. This compares to a delinquency rate of 1.06% in January 2008.

The company says these numbers are elevated as a result of its moratorium on foreclosures that ended in March.

Market participants say that even though these numbers are still low compared to the averages on other kinds of mortgages, it represents an increased stress on the company from its mortgage holdings. These numbers are expected to rise as the unemployment rate continues to tick upwards, and job losses drag even creditworthy borrowers into missing payments.

On the business front, Fannie committed to buy nearly $5.4 billion of mortgage bonds in March, up from its net commitments of nearly $2.4 billion in February.

The mortgage giant's investment portfolio shrunk by 1.3%, keeping its total balance at $783.868 billion, well short of the curbs set by its regulator, according to a monthly report from the company.

Over the past couple of months, the role of Freddie Mac (FRE) and its sibling Fannie in the mortgage market have diminished as both the U.S. Treasury and the Federal Reserve Board have emerged as backstop buyers with deep pockets.

However, market participants still keep tabs on Fannie and Freddie's portfolios as an indication of their financial health, and their ability to continue to play a role as both guarantors and buyers of mortgage bonds.

Meanwhile, Fannie Mae's total book of business increased at an annualized compound rate of 12.3% in March.

Total Fannie Mae issuance of mortgage bonds increased to $87.8 billion in January, nearly double its February volume of $45.3 billion.

Issuance of Fannie Mae securities and other guarantees increased at a compounded annualized rate of 15.4% during the month.

Fannie's duration gap, a measure of the portfolio's sensitivity to interest rates, averaged two months in March, up from two in February.

Freddie and Fannie are chartered by Congress to buy mortgages from lenders, freeing them to make more loans.

They repackage the mortgages as securities and sell them again. Both also hold on to large quantities of mortgage securities, profiting from the difference between the interest rates they pay and the cost of debt issued to fund their purchases.

-By Prabha Natarajan, Dow Jones Newswires; 201-938-5071; [e-mail]