Fannie Mae's profit soared more than 60 percent in the first quarter, in part because of low interest rates and the booming mortgage market and in part because of an accounting quirk.

Based on generally accepted accounting principles (GAAP), the company earned $1.94 billion ($1.93 per share) in the first quarter of this year, up from $1.21 billion ($1.17) in the same period a year earlier.

For the past several years, however, the accounting principles have required the company to adjust its bottom line to reflect the market value of certain derivatives it uses to hedge interest rate risk -- even though the losses haven't been realized. In the first quarter, Fannie booked $163 million less in losses related to those derivative investments, thus boosting net income relative to last year's first quarter.

Since these gains and losses are never realized, the company says, it also tracks what it calls "core business earnings," which accounts for the hedges differently and produces what Fannie Mae executives say is a more meaningful picture of the company's performance.

On that basis, the company's income rose more than 20 percent as profit reached $1.85 billion ($1.84 per share) for the first quarter, up from $1.52 billion ($1.48) a year earlier.

District-based Fannie Mae, formally known as the Federal National Mortgage Association, is a congressionally chartered, stockholder-owned corporation that is the largest buyer of residential mortgages from lenders. Fannie's purchasing allows lenders to make more loans. It packages some of the loans it buys into mortgage-backed securities that are sold to investors, and it holds some for its own account.

The extremely low interest rates of last year and early this year produced a jump in the company's net interest rate margin -- the difference between its borrowing costs and what it earns on mortgages it owns -- and also continued to fuel home purchases and refinancing by homeowners.

Fannie Mae's business volume leaped during the quarter. It bought $335.94 billion in mortgages in the quarter, compared with $197.75 billion in the same period last year.

Chief Financial Officer Timothy Howard said that in light of the strong quarter, the company is adjusting the earnings guidance it gave investors in January. At that time Howard called a forecast of 12 to 13 percent growth in core business earnings as "a reasonable centering point for estimates." Yesterday he said, "We now expect to see a moderately higher growth rate in core business earnings."