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"I mean, on a $1 trillion asset base, $25 billion becomes little more than a 2.5% hedging error."

"But with total stockholder equity of only $16.8 billion, it's bit of a bummer for shareholders isn't it? Leverage of 55:1 isn't real forgiving of 2.5% errors. It isn't even very forgiving of 0.5% errors. "


All true. However, the underlying portfolio has an LTV of 60% - 65%. So, things have got to get pretty ugly before FNM needs to tap the reserves, and then Shareholder equity. Of course, the risk is in "the tails". If the FNM derivative usage is truly "hedge-based", the risk-profile on the interest rate side is truly improved. IF FNM is taking directional positions in their derivative portfolio, all bets are off.

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