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To: orkrious who wrote (194386)	9/30/2002 8:14:25 PM
From: Earlie	Respond to of 436258

Ork: Like you, I look forward to hearing from those who know. Best, Earlie

To: orkrious who wrote (194386)	9/30/2002 11:47:45 PM
From: Mark Adams	Read Replies (1) \| Respond to of 436258

IMO- it's not the Fed Funds rate that would hurt Fannie Mae, but the further decline in TNX/TYX bring mortgage rates ever lower, and further aggravating the negative duration gap. It's my theory that the MBS convexity hedging has a positive feedback component at work now, with the amount of MBS exposure being hedged increasing with time/cashout refi and property appreciation, while the amount of offsetting supply of long dated treasury paper shrinking due to the US shift to issuing shorter dated paper and the probable hoarding of long dated paper overseas. Perhaps this has something to do with the fed activities at higher levels due to the desire to migrate to a shorter duration themselves, which would in effect improve the breathing room for MBS hedging. I'd say that the 'fear' environment has tipped us into this positive feedback loop, and it's likely easy to break out of, provided the speed at which refi's are done cannot accelerate too much. I suspect if we graphed the spread between mortgage rates and TNX, we'd see it has widened some, and we have human limiting factors on the number of refi apps that can be processed per week.