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Fannie Mae


, the nation's biggest mortgage-finance firm, announced a slight increase in second-quarter profits Wednesday, but lowered its earnings forecast for the remainder of the year.

The government-sponsored company earned $1.11 billion, or $1.10 a share, compared to $1.1 billion, or $1.09 a share, a year ago.

Fannie's core earnings, the metric the firm implores Wall Street to follow, rose 1.9% to $1.9 billion, or $1.91 a share, compared to $1.86 billion, or $1.86 a share, a year ago. By that measure, Fannie bested the Thomson First Call estimate of $1.83 a share in the latest quarter.

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But Fannie officials, in a press release, lowered their outlook for the rest of the year, mainly due to an accounting change the firm's regulator recently forced it to follow. The finance firm said it expects core earnings to rise in the "mid-single-digit range,'' down from an earlier prediction that core earnings would rise by about 10%.

In premarket trading, shares of Fannie were down 88 cents, or 1.2%, to $73.40 on Instinet.

Fannie, which buys mortgages from other lenders and resells them as mortgage-backed securities, said its earnings were fueled in the quarter by the earlier repurchase of some of its outstanding debt and an increase in fee income from mortgages that is guaranteed.

An accounting change mandated by Fannie's regulators forced the firm to take a $278 million impairment expense on the value of its mobile home mortgage-backed bonds.

Net interest income at Fannie fell 11% due to the changing interest rate environment.

In the quarter, Fannie said its huge mortgage portfolio, which it relies on to generate profits, grew by 9.4% compared to a year ago. Fannie's exposure to potential derivatives losses was $534 million as of June 30, up from $327 million on March 31. Fannie uses derivatives to hedge its exposure to fluctuations in interest rates.