Fannie Mae's first-ever decision to invoke its right to buy back seasoned pools of loans supporting some of its older mortgage-backed securities not only seriously disrupted the secondary mortgage market, but also handed a bandolier of ammunition to political critics who have been hounding the agency for years.

MBS market participants say Fannie's callback of more than $1.5 billion in bonds has pulled between $120 million and $130 million out of the market and into Fannie Mae portfolios, and has thrown the secondary market for higher coupon and seasoned collateral into utter disarray. "We've been at a complete standstill for the whole week because of this," said one MBS trader who wished to remain anonymous. He noted that there was almost total unwillingness for CMO desks to bid on premium highly seasoned Fannie Mae and Freddie Mac paper.

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