Fannie Mae chairman and chief executive Franklin Raines is predicting that commercial banks will soon loose their appetite for investing in mortgages as short-term interest rates rise."The one thing we know is that the carry trade that banks conduct in mortgages doesn't last forever," he told a UBS Warburg financial services conference. In response to critics such as Federal Reserve Board Chairman Alan Greenspan, Mr. Raines argued that Fannie's ability to purchase and portfolio mortgage loans and securities plays an important role in providing liquidity to the market when other investors no longer find it lucrative to invest in mortgages. "Without our mortgage portfolio, both investors and consumers would feel the pain," he said. Investors would not be able to find a ready buyer when they want to sell their mortgage holdings and mortgage rates would skyrocket -- hurting consumers, according to Fannie's CEO. "But we will be ready to stabilize the mortgage market," Mr. Raines said.

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