Fannie Mae has decided to increase its capital reserves in response to political pressures and a lack of attractive mortgage investments."We think at this time having modest increases in the level of surplus capital is probably not a bad thing from an overall risk assessment standpoint," Fannie Mae chief financial officer Tim Howard told investors and analysts during a conference call on the company's first quarter earnings. The earnings report showed that Fannie's mortgage portfolio declined by 7.6% on an annualized rate during the first quarter, while its core capital ($35.7 billion) increased by 21% from the first quarter of 2003. Fannie's core capital and subordinated debt exceeded 4%. Mr. Howard indicated that a strong capital position might be an advantage while a stalemate over government-sponsored enterprise legislation persists. "There are those who feel a growing level of surplus capital is a sign of financial strength," he said. He also noted that Fannie continues to buy back stock. "But at the moment there is a slight tilt for holding surplus capital vis-à-vis aggressive buybacks."
