Updated from 8:01 a.m. EDTFannie Mae's ( FNM) first-quarter earnings slipped from a year ago, as declining interest income from home loans and valuation losses on its derivatives portfolio offset a big increase in fees received for putting together mortgage bonds. The company risked raising more eyebrows on Wall Street and in Washington Monday by
But for the past several years, Fannie Mae and its corporate sibling Freddie Mac ( FRE) have been the subject of much controversy on Capitol Hill over their bookkeeping and increasing use of leverage to run their businesses. Politicians and regulators have been debating whether to stiffen the operating guidelines for the two mortgage giants. In the latest quarter, net interest income fell 5.1% to $3.20 billion, reflecting the lower interest rates banks have been forced to charge in a fiercely competitive lending market. Fannie's reported net interest yield, or the difference between its cost and money and the interest it collects from home owners, declined 20 basis points to 1.4% in the first quarter compared with a year ago. The main drag on first-quarter reported earnings was a $959 million charge related to the revaluation of its options portfolio in the quarter. Fannie owns a huge portfolio of derivative instruments to protect against big swings in the value of its mortgages, and is forced to mark the derivatives to their market value each quarter. The company took a similar charge of $624.6 million in the year-ago period. Excluding the options math, Fannie's "core" earnings rose 9.2% in the first quarter from a year ago, as the company saw its loss from calling and buying back debt fall by $365.5 million and fees from manufacturing mortgage bonds shoot up 34.8%.