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To: DaveMG who wrote (167098)	5/21/2002 1:24:34 PM
From: LLCF	Respond to of 436258

Thanks.... the issue keeps coming up as the GSE explode their balance sheets which have currently surpased the size of that of the US Govt. Meanwhile FRE's head of finance is sounding the alarm about the negative convexity in their portfolio [short Trillions of puts by nature of the refinance option granted to all conforming loan takers] and trying to hedge it going forward: <<A top executive at Freddie Mac(NYSE:FRE - news), the No. 2 U.S. mortgage finance company, warned that $1 trillion in mortgage loans refinanced last year could make the U.S. bond market more volatile. This could eventually lift borrowing costs for home buyers if bond investors demand higher returns in exchange for taking on more risk. "The swings in volatility and duration could be massive," said Freddie Mac Chief Investment Officer Greg Parseghian at a session at The Bond Market Association annual meeting here. >> biz.yahoo.com Note that the Trillion refinanced last year, while creating nice fee's for the GSE also rolled their short premium down to "at the money". DAK