Fannie Mae Has Been Wearing Her Thinking Cap

For most players in the residential mortgage market, this era of rising interest rates is beginning to take on a passing resemblance to Gehenna. With rates on 30-year mortgages spiking and expectations of even higher ones to come, lenders have been dumping their fixed-rate loans at fire-sale prices. And investors in mortgage-backed securities, who had bet on lower rates, have sustained fierce losses. With those players pulling back, the demand for mortgages has plummeted further. But the Federal National Mortgage Assn., which buys one out of every four mortgages made today, is riding high.

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