Hedging: In Wake of Attacks, Lenders Wonder What Terrorism Means for Credit Markets.

Is there any way to hedge for a disaster like the events of Sept. 11? Yes and no, risk management experts tell MSN.

The disastrous terrorist attack on Sept. 11, the worst in world history, did more than kill over 6,000 people. The economic, political and psychological ramifications of that day will not be fully understood for years. Ultimately, it will put a stronger focus on risk management issues, such as a company's contingency plans for operating in the case of a disaster.

But when it comes to anticipating the interest rate implications of a terrorist attack, hedging experts say the best thing you can do is be prepared for a wide variety of interest rate swings. In the case of a terrorist attack, lenders that are hedged to manage a "flight to quality" that drives down interest rates will do OK.

Bob Husted, a principal at Mortgage Industry Advisory Corp., said that when the market engages in a flight to quality, mortgage investments tend to do fairly well, because they are viewed as a quality investment.

But as interest rates fall, that raises the specter of prepayment and portfolio runoff problems for mortgage servicers.

Mr. Husted said it probably is not possible to anticipate all of the economic ramifications from a natural disaster or terrorist attack, but a comprehensive hedging strategy should help lenders in a crisis even if there is no direct way to hedge against disaster.

"If one is doing one's job right and hedging against substantially spiked prepayment rates, then that should incorporate a lot of those contingencies," he said.