Since 2008, however, the residential mortgage market has experienced historically high default and foreclosure rates, credit losses, liquidity problems, and tighter mortgage standards. In addition, Fannie Mae and Freddie Mac, two congressionally chartered government-sponsored enterprises (GSEs) formed to provide liquidity and access to the mortgage market, have been placed in conservatorship and have received various types of financial support from the U.S. Department of the Treasury and the Federal Reserve. In the first nine months of 2012, Fannie Mae and Freddie Mac together owned or securitized 77% of new mortgage-backed securities (MBS), and Ginnie Mae, which is part of the Department of Housing and Urban Development (HUD), guaranteed the other 23%. Some have questioned the solvency of the mortgage insurance program of the Federal Housing Administration (FHA). In coming years, the residential mortgage market is likely to change in response to legislation, regulatory actions, demographic changes, and continuing problems in the mortgage market. Changes to the mortgage market can be organized into three categories: legislative, regulatory, and demographic. Legislative Changes

In the 112 th Congress there were many bills introduced that would have changed the residential mortgage market. Fannie Mae and Freddie Mac could have been affected by more than 45 bills that were introduced. The maximum unpaid balance on mortgages purchased by Fannie Mae or Freddie Mac, or guaranteed by the FHA and Ginnie Mae (part of the HUD) with the full faith and credit of the U.S. government, has been changed by legislation six times since 2008. New Regulations

Government agencies are developing new regulations that will affect the mortgage market. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act; P.L. 111-203 ) requires the Consumer Finance Protection Board (CFPB) to adopt regulations to implement "qualified residential mortgages" (QRMs) and financial regulators to implement "qualified mortgages" (QMs), which would affect risk retention, underwriting, pooling, and selling the mortgages as MBSs. Expected changes in house prices, income, household size, and government incentives are important. Today, homeowners seeking a mortgage apply to a mortgage originator, which may or may not be part of a larger financial organization. The originator typically sells the mortgage to a securitizer, which pools them into MBSs that are in turn sold to institutional investors, including trusts, pension funds, and sovereign wealth funds. Both the mortgage guarantees to lenders and the MBS guarantee to investors are backed by the full faith and credit of the federal government. They either hold the MBSs as an investment or sell them to others. Savings institutions (such as savings and loans) were important 1957-1991. When the original lender retains the servicing rights, the borrower has no indication who owns the loan. Appendix A. The Housing IGs list the following HUD programs:
One- to Four-Family Home Mortgage Insurance Single Family Disposition Program Mortgage Insurance for Disaster Victims Rehabilitation Loan Insurance Energy Efficient Mortgage Insurance Good Neighbor Next Door Graduated Payment Mortgage FHA Home Affordable Modification Program (HAMP) Loss Mitigation Manufactured Homes Loan Insurance (Title I) Property Improvement Loan Insurance (Title I) Home Equity Conversion Mortgage HOPE for Homeowners Insured Mortgages on Hawaiian Home Lands FHA Insured Mortgages on Indian Land Neighborhood Stabilization Program 1 Neighborhood Stabilization Program 2 Neighborhood Stabilization Program 3 Emergency Homeowners' Loan Program Ginnie Mae Mortgage-Backed Securities (MBSs)
The Housing IGs list two USDA programs:
Single Family Housing Guaranteed Loan Program (GLP) Single Family Housing Direct Loan Program (DLP)
They list one VA program:
VA Home Loan Program
At FHFA, they list programs run by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks:
Making Home Affordable Programs Mortgage-Backed Securities Program Mortgage Purchasing and Retained Portfolio Mortgage Servicing Program Real Estate Owned Purchasing and Financing Program Acquired Member Asset (AMA) Program Advances, Letters of Credit, and Lines of Credit Affordable Housing Program (AHP) and Community Investment Program (CIP) Office of Finance Debt Issuance Private-Label Mortgage Purchases Program
Provisions in the tax code that reduce the tax liabilities of individual income taxpayers for activities related to homeownership include the following:
Deduction for Mortgage Interest on Owner-Occupied Residences Deduction for Property Taxes on Owner-Occupied Residences Increased Standard Deduction of Real Property Taxes on Owner-Occupied Residences Deduction for Premiums for Qualified Mortgage Insurance Exclusion of Capital Gains on Sales of Principal Residences Exclusion of Interest on State and Local Government Bonds for Owner-Occupied Housing First-Time Homebuyer Tax Credit Exclusion of Income Attributable to the Discharge of Principal Residence Acquisition Indebtedness
Policy Reasons Advanced For and Against Government Support
Economists and policy analysts usually begin their analysis of proposed or actual government interventions by asking, "What is the market failure?"
This report provides an overview of the changing residential mortgage market, focusing on trends in housing prices, homeownership, mortgage characteristics, and financing. It also examines legislation and regulations designed to promote the efficient functioning of the mortgage market.
Congressional Concern About Mortgages
Congressional interest in residential mortgage markets has increased following the collapse of the housing bubble, government financial support to the mortgage market, and housing's perceived importance to the broader economic recovery. Since 2008, the residential mortgage market has experienced some of the highest default and foreclosure rates since the Great Depression. The future of Fannie Mae and Freddie Mac, two congressionally chartered government-sponsored enterprises (GSEs) that have long been central pillars of the mortgage market, is also the subject of congressional debate. Both GSEs are currently in conservatorship and have received financial support from the U.S. Department of the Treasury. There is also concern over the financial conditions of the Federal Housing Administration's (FHA's) mortgage guarantee program.
How Mortgages Are Funded
Today and in the foreseeable future, home mortgages are indirectly financed by financial institutions, such as pension funds, college endowments, central banks, and sovereign wealth funds. A household seeking a mortgage typically applies directly to an organization (or part of a larger organization) that specializes in the mortgage origination process. This mortgage originator applies computer algorithms to the applicant's credit scores, earnings history, savings information, and other data to underwrite (evaluate) the mortgage application. The originator may "hold the mortgage in portfolio" as an investment or sell it within days of being issued. In the latter case, the mortgage might be sold again, and typically ends up pooled with other mortgages in a mortgage-backed security (MBS) that is guaranteed by Fannie Mae, Freddie Mac, or by the federal government through Ginnie Mae, which is part of the Department of Housing and Urban Development (HUD). The MBS frequently is sold to an institutional investor. In many cases servicing is contracted out and the homeowner does not know who actually owns the mortgage.
Possible Changes to the Residential Mortgage Market
Change is expected on a variety of fronts.
More than 45 bills were introduced in the 112th Congress to enhance the accountability of Fannie Mae and Freddie Mac. Some of the bills sought to reduce the cost to the government, while others sought to change the enterprises' charters if or when they leave conservatorship. Previously enacted legislation requires regulations for full implementation. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act; P.L. 111-203) requires new regulations affecting risk retention and mandating that mortgages be "suitable" for borrowers. The maximum size of mortgages that can be purchased by Fannie Mae or Freddie Mac, or included in MBSs guaranteed by Ginnie Mae (part of the FHA) with the full faith and credit of the U.S. government, has been changed by legislation six times since 2008. Demographics, the recent recession, and the experience of the housing bubble each are likely to result in changes to household formation and homeownership preferences regardless of any legislation enacted into law.
This report will be updated as warranted.