With mortgage rates inching ever so slightly closer to the 9% mark - the highest in five years - investors are wondering if the mortgages they are holding are facing extension risk.

"And given that most investors have a very large exposure to discount mortgages, because that's where most of them are, that may be a concern," said Dale Westhoff, a managing director at Bear, Stearns & Co. "I think clearly given that where the Fed is, the risk/reward favors up-in-coupon type trades, so that's where there's been some activity."

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