Risk ALM USA: mortgage investors’ extension risk balloons
The combination of a concentration of mortgage assets in ever-fewer hands and a dearth of hedging tools for short-duration mortgage portfolios has dramatically increased banks’ extension risk, according to Kamal Abdullah, senior vice president – fixed income research at Lehman Brothers.
The fact that the Fed cut rates to 1% today isn’t very comforting, in light of the parallels to 1993-1994 when the Fed was forced to tighten sharply and rapidly. Mortgage investors, mortgage servicers and even community banks need to act now to manage the risk of an
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