The first quarter was a stellar one for Washington, D.C.-based Federal National Mortgage Association (Fannie Mae). The company’s profit rose more than 60% during that time period as low interest rates and a thriving mortgage market bolstered its business. The company is the largest buyer of residential mortgages from lenders.

Fannie Mae earned $1.94 billion ($1.93 per share) in the first quarter of this year, up from $1.21 billion ($1.17) during the same period a year prior. But its numbers may have been influenced by an accounting quirk. Accounting principles dictate that Fannie Mae adjust its bottom line to reflect the market value of derivatives it uses to hedge interest rate risk, despite the fact that those losses have not occurred. During the first quarter, the company posted over $160 million less in derivative-related investment losses, which raised the new income in the first quarter of 2003 significantly over the first quarter of 2002.

When these gains and losses aren’t realized, the firm tracks so-called "core business earnings" that take the hedges into account. According to Fannie Mae officials, this offers a better picture of the company’s financial performance. So, by the core business approach, Fannie Mae’s net income rose more than 20% as profit reached $1.85 billion ($1.84 per share) for the first quarter, up from $1.52 billion ($1.48) one year earlier.