Net income for the three-month period ending on March 31 was about $1.9 billion, down from $2.2 billion for the three-month period ending Dec. 31, 2003, and down from $2.6 billion for the quarter before that. The loss, the company explains, was a result of "an increase in unrealized mark-to-market losses on the time value of purchased options, a 5.1% decline in net interest income and a $111.1 million decline in fee and other income."

But the news is not all negative. Core business profits in the first quarter went up by 9.2% over the same timeframe in 2003. "Growth in outstanding MBS during the first quarter served as an offset to the decline in our mortgage portfolio," Fannie Mae chairman and CEO Franklin D. Raines says, "which we had anticipated given the intensity of competition for mortgage product among investors."

Despite a string of discouraging quarterly results, Raines says the prognosis is good for Fannie Mae and a change is probably just around the corner. "With our strong capital base, the demonstrated effectiveness of our risk disciplines, and the sustained high level of purchase originations flowing into our market, we are well positioned to continue to support our mission and to capitalize on opportunities for profitable growth in the coming quarters." All eyes--particularly those of government regulators--are on Fannie Mae, as well as its sister GSE Freddie Mac, due to revelations of the latter company's $4.5 billion earnings understatement last year.