An important new paper from authors at AEI, FHFA, and the MBA reveals a dramatic inversion between interest rates on GSE and jumbo, portfolio mortgages.  Once, the GSEs’ slight pricing edge was part of their political defense; now that it’s gone, one might argue that the GSEs are far less necessary than once they were.  However, we think factors above and beyond g-fees have realigned bank asset allocation, accounting for part of the spread inversion and suggesting that still higher g-fees will make little difference in stimulating big-bank appetite for holding conventional, conforming loans in portfolio.

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