Leading the News: Fannie Mae Says Key Risk Measure Narrowed Some --- Figures Are Released Early Amid Growing Scrutiny, Call for Further Disclosure
Fannie Mae said an important measure of the company's interest-rate risk narrowed in September, easing concerns that it was struggling to weather a massive surge of mortgage refinancing. But a top Federal Reserve policy maker kept the heat on, pressing for more financial disclosure from the company and calling on Congress, as others have, to focus more attention on Fannie Mae's growing size and leverage.</br></br>The government-sponsored company, which buys mortgages from lenders to boost the flow of capital in the housing market, has suffered unusually intense scrutiny lately. Two weeks ago, the company rattled markets when it disclosed that its so-called duration gap, a measure of its success at managing interest-rate risk, ballooned to minus-14 months in August due to heavy refinancing activity. A negative duration gap effectively means that Fannie Mae's assets are paying off faster than its debts.</br></br>In an unexpected move yesterday, however, Fannie Mae said its duration gap narrowed to minus-10 months in September, suggesting it is improving its position. The company normally announces its duration-gap figures in the middle of the month, but it released its September data just hours after the month ended because of "greatly heightened interest" from investors and others, according to a statement.</br></br>Although a minus-10 month duration gap is outside of the company's preferred parameter of plus- or minus-six months, the move toward a smaller gap relieved investors. At 4 p.m. yesterday in New York Stock Exchange composite trading, Fannie Mae jumped $5.68, or 9.5%, to $65.22. The gain was the largest one-day percentage gain for the company since Oct. 21, 1987. The Treasury market slumped, as investors unwound positions they had bought in anticipation of Fannie Mae's possible need to buy Treasurys and related investments to better hedge its portfolio.</br></br>The fact that Fannie Mae was able to reduce its gap "shows their business model is working," said Robert Napoli, an analyst at Minneapolis-based US Bancorp Piper Jaffray. In an appearance on CNBC yesterday, Fannie Mae chairman Franklin Raines said the company reduced its gap in large part by buying more mortgages, which would have had the effect of extending the life of Fannie Mae's loan portfolio. Market analysts speculated that the company also reconfigured some of its positions in derivatives markets.