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To: Amy J who wrote (171224)	9/25/2002 8:10:15 AM
From: Dan3	Respond to of 186894

Re: The duration gap of a financial company is equal to the duration of assets minus the duration of liabilities Let's hope they've hedged most or all of that risk - they've certainly hedged some of it: Fannie Mae primarily uses derivative instruments as substitutes for noncallable and callable debt issued in the cash markets to help match the cash flow characteristics of its debt with those of its mortgages and reduce the interest rate risk in its portfolio. Fannie Mae accounts for its derivatives under Financial Accounting Standard No. 133 (FAS 133), Accounting for Derivative Instruments and Hedging Activities, which was adopted on January 1, 2001. The implementation of this standard resulted in significant accounting presentation changes to both the company's income statement and balance sheet. fanniemae.com

To: Amy J who wrote (171224)	9/25/2002 8:57:40 AM
From: GVTucker	Read Replies (1) \| Respond to of 186894

OT, Amy J, RE: Fannie Mae Is Fannie Mae overleveraged? Probably. But the duration gap of 14 months that has the fixed income markets concerned is really kind of funny to me, because Fannie Mae has had a duration gap for forever. Yeah, it hasn't been 14 months the whole time, but 14 months isn't too far out of the normal range, either. It's the way their business operates. And they've made a ton of money in the process. That doesn't mean that duration gap is necessarily innocuous. I've looked at Fannie Mae as a short numerous times in the past, primarily because of the leverage and the duration gap. It's never been enough for me to pull the trigger, but still, I think there's a modest probability of Fannie Mae blowing up that the market might not be discounting until recently. As far as any government bailout is concerned, there's no question in my mind that if Fannie Mae blew up, the government would bail her out. I don't think that's right, but let's face it, the government bailed out Long Term Capital, an institution completely independent of the government. Fannie Mae operates under a federal charter and sells debt with an implicit US govt guarantee. No way the Fed allows Fannie Mae to go under.