The Federal National Mortgage Association on Monday will add convertible adjustable-rate mortgages based on a West Coast index to its loan portfolio, it announced at the National Association of Realtors annual convention in Honolulu this week.

By adding the loans to its portfolio instead of just reselling them to investors as securities, Fannie Mae said it expects more lenders will offer home buyers adjustable-rate mortgages based on the West Coast index.

For adjustable-rate mortgages to be eligible for the program, their interest rates cannot increase more than 1 percentage point during each six-month adjustment period. Lenders will have the option of allowing borrowers to convert to fixed-rate mortgages during any month in the second through fifth years.

The mortgages are tied to a Federal Home Loan Bank of San Francisco 11th District Cost of Funds index, which is used by many lenders on the West Coast. The index, calculated monthly, is based on information from lenders in Arizona, Nevada and California.

"This decision is good news for the home buyer," said Dennis Campbell, senior vice president of marketing and product management for the organization, known as Fannie Mae. "It will help expand the market for this important West Coast mortgage product. We believe that its availability in other parts of the country will be increased by our action."

Fannie Mae buys loans from lenders and resells them to investors, both as individual notes and as portfolio packages. Since 1982, through its mortgage-backed securities program, it has bought and sold more than $20 billion in adjustable-rate mortgages, many of which are tied to the 11th District Cost of Funds index.

"The convertible feature has not generally been available in the pastfor the Cost of Funds adjustable-rate mortgages," said Shirley Parish, Fannie Mae's adjustable-rate products manager.