As a whole, rate of interest exposure is easily managed by the modifying maturities from assets and debts. However, hedging prepayment exposure is more state-of-the-art. To cope with it chance with little money requires good conceptually advanced level hedging framework. Essentially, the present day program utilizes the chance professionals from the Fannie and Freddie doing what you perfectly, in lieu of based a market-situated program backed by the danger examination and you can administration capabilities out-of of several people with various viewpoints and different methods for hedging threats.
As ever, issues about systemic risk is appropriately worried about highest, extremely leveraged financial institutions including the GSEs one to enjoy substantial jobs regarding the operating out-of monetary segments. I should emphasize one Fannie and you may Freddie, yet, seem to have handled these risks really hence we come across absolutely nothing towards immediate vista that is probably do a good general state. But to help you fight you’ll coming systemic problems, hence we evaluate as most likely in the event that GSE extension continues on unabated, preventive strategies are required sooner rather than later.