Many community banks have increased their holdings of longer-term mortgage assets, including mortgage securities guaranteed by Ginnie Mae and the government-sponsored enterprises, in an effort to enhance both credit quality and earning asset yields.
While such holdings advance public policy interests in reviving the mortgage market, they nevertheless pose the potential for increasing interest rate risk exposures, in part because of the embedded options in residential mortgages. Additionally, some banks appear to be assuming more-complex exposures to interest rate risk through purchases of structured products.