Some maintain that these large portfolios create a buffer against crises in the mortgage market. But that notion suggests that the spreads of home-mortgage interest rates against U.S. Treasuries, a measure of risk, would narrow as GSE portfolios increased.
Despite the huge increase in the GSE portfolios, however, mortgage  spreads have actually doubled since 1997, when comparable data for interest rate spreads on mortgage-backed securities first became available.4 A recent study by Federal Reserve Board staff found no link between the size of the GSE portfolios and mortgages rates.5 The past year provides yet more evidence, with GSE portfolios not growing and mortgage spreads, as well as the spread between yields on GSE debentures and Treasury securities, declining further.