The subprime market will likely be affected first as Fannie Mae sells securities to rebuild its regulatory capital, according to a Mortgage Bankers Association economist."In the short run, it may have more impact on the subprime market than the prime market," MBA economist Jay Brinkmann said. In complying with regulatory directives to restate its earnings and rebuild regulatory capital, Fannie Mae will probably sell its investments in triple-A rated subprime securities first, Mr. Brinkmann said. In the prime market, Fannie has not been a major purchaser of mortgage-backed securities this year. "We think near term that demand [from other investors] will be sufficient to keep prices at current levels," he said. Mr. Brinkmann heads the MBA's economic and research department. The Office of Federal Housing Enterprise Oversight will be working with Fannie to help the government-sponsored enterprise replenish its regulatory capital. The MBA economist said he hopes any portfolio sales will be gradually phased in to minimize market impacts.

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