On the other hand, the vast size of the market for highly rated assets greatly increases the potential for rapid growth of GSE portfolios and, consequently, systemic risk. In contrast, the market for affordable-housing products – particularly mortgages extended to households with below-median-income – is less deep and liquid than the broader market for residential mortgages.
GSE portfolio purchases might add significant liquidity to the secondary markets for such assets, thereby reducing costs and increasing credit availability to prospective home purchasers. In addition, increasing the presence of the GSEs in the market for affordable housing could help banks fulfill their CRA obligations by providing them with greater opportunities for securitizing such loans.