The slide in shareholder equity did not come as a surprise toFannie Mae officials, nor has it prompted any big concerns. "As wehave said before, our shareholder equity and the FAS 133 componentof AOCI will move as interest rates rise and fall," Jayne Shontell,Fannie Mae senior vice president for investor relations, explainsin a prepared statement on the SEC report. AOCI is the accumulatedother compressive income, and FAS 133 is the Financial AccountingStandard No. 33.

During the first quarter, the five-year swap rate fell 50 basispoints, and the 10-year swap rate went down 42 basis points, thusthe stockholder equity decline. Other factors contributing to thenumbers for this quarter include a $172-million decline in reportednet interest income, and a $112-million drop in fee and otherincome.

"We continue to believe these changes in shareholder equity andthe FAS 133 component of AOCI do not provide a full picture of ourfinancial results because they reflect only a partial mark tomarket valuation of some of the hedging instruments we use tomanage risk," Shontell adds.