Fannie Mae’s investment portfolio contracted in January for a third straight month as a result of mortgage portfolio sales and a reduction in purchases, the mortgage giant said Tuesday.

The country’s No. 1 mortgage finance company said its investment portfolio shrank at an annualized 16.8 percent rate in January, compared to a 10.1 percent decline in December 2004.

The company’s investment portfolio was at $890.8 billion.

Fannie bought $11.1 billion in mortgage assets for its portfolio, down from $13 billion in December, the company said.

Both Fannie Mae and its fellow government-sponsored enterprise, Freddie Mac, have been rocked by accounting scandals. In December 2004, Fannie Mae replaced Franklin Raines, its chairman and CEO, who announced he was taking early retirement, and Fannie Mae’s chief financial officer, Timothy Howard, resigned Dec. 21.

Last week, Alan Greenspan, chairman of the Federal Reserve, told the House Financial Services Committee he sees “no reasonable basis” for Fannie Mae and Freddie Mac to hold enormous mortgage portfolios, according to Forbes.

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