Housing finance reform, however, remains one of the major unresolved issues stemming from the financial crisis. Congress has debated housing finance reform at length and legislation making modest changes to the system has been enacted. The Federal Housing Finance Agency (FHFA), the regulator and conservator for the GSEs, has used its regulatory authority to lay the foundation for the future housing finance system. The FHFA-directed restructuring of the system focuses on three main policy questions:
1. Who will bear credit risk in the future? How will mortgage-backed securities (MBS) be issued? and 3. What will the MBS look like once issued? The Financial Regulatory Improvement Act ( S. 1484 ), which was reported by the Senate Committee on Banking, Housing, and Urban Affairs, would codify the actions taken by FHFA in some cases and alter FHFA's actions in others. The MBS are sold to investors, with the GSEs guaranteeing that investors will receive timely payment of principal and interest on their MBS even if a borrower with a mortgage that is part of the MBS becomes delinquent. Under the pre-FHFA reform system shown in Figure 1 , Fannie Mae and Freddie Mac guarantee their MBS and, in doing so, absorb the credit risk. Credit risk is the focus of the risk-sharing transactions, but it is only one of many different types of risks to which the GSEs are exposed. Risk sharing is one of the ways in which FHFA is attracting private capital back into the market and reducing taxpayers' risk exposure. Freddie Mac's debt issuance deals are called Structured Agency Credit Risk (STACR) and Fannie Mae's are called Connect Avenue Securities (CAS). Congress may be interested in the different transaction types for how they affect the housing finance system and reduce taxpayers' risk exposure in the short term, but also in how risk sharing could be incorporated into broader housing finance reform (how much, if any, credit risk the federal government should be exposed to is a source of contention in the reform debate). Rather than updating two separate systems, FHFA determined that the GSEs should jointly develop a new, common system that they could both use. Section 705 of S. 1484 would
require FHFA to submit (1) an annual report to Congress on the status of the CSP's development and of the legal and contractual framework needed for non-GSEs to securitize through the CSP and (2) a report within three years of enactment on a plan to transition the CSP from joint ownership by the GSEs into a private, nonprofit entity; require FHFA to direct the GSEs to alter the composition of CSS's board of directors to include directors not affiliated with the GSEs; authorize CSS to develop standards for a non-GSE company to securitize mortgages through the CSP and to facilitate issuing MBS through the CSP by a non-GSE company; prohibit CSS from performing certain activities, such as owning, holding, or assuming the credit risk of mortgages or MBS; give FHFA regulatory authority over CSS to ensure safety and soundness; instruct FHFA to transfer funds from the GSEs to the CSS as needed for CSS to perform its functions and direct the GSEs to transfer or sell to the CSP any property, systems, or infrastructure necessary for the CSP to perform its functions; require the CSP to be transferred from the joint ownership of the GSEs to a private, nonprofit entity within 5 years of enactment and, within 10 years of that transition, the GSEs would be repaid the total cost of the property that was transferred. As mentioned above, some argue that an open access CSP is important to ensuring that other private companies will play a larger role in the mortgage market in the future. Single Security

The Single Security is FHFA's initiative to alter the type of MBS that would be issued in the future. Currently, each GSE issues its own MBS. Fannie MBS and Freddie MBS are different securities governed by different legal contracts and trade in different markets at different prices. The Single Security would be a single MBS that the GSEs could issue through the CSP and trade in a single market. As discussed in more detail below, FHFA argues that the primary benefits of the Single Security would be to enhance the liquidity of the MBS market—the ease with which MBS can be bought and sold—and remove the subsidy that Freddie Mac currently offers to keep its MBS competitive. Promoting Liquidity. Congressional Action on GSE Reform

The three policy issues explained above—risk-sharing transactions, the Common Securitization Platform, and the Single Security—are part of FHFA's reform of the housing finance system.
Housing finance reform remains one of the major unresolved issues stemming from the financial crisis. Congress has held hearings and marked up bills related to reform, but so far only modest structural changes have been enacted. The Federal Housing Finance Agency (FHFA) has used its regulatory authority to enact certain policy changes.
FHFA is the regulator and conservator of Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs) that play a significant role in the housing finance system. FHFA has leveraged the authority that it has over the GSEs and their market dominance to implement changes to the housing finance system that could shape the future course of the system.
The FHFA-directed restructuring of the system focuses on three main policy questions:
1. Who will bear credit risk in the future? 2. How will mortgage-backed securities (MBS) be issued? and 3. What will the MBS look like once issued?
The Credit Risk Transactions (CRT) are FHFA's efforts to modify who bears credit risk. The GSEs guarantee that investors in their MBS will receive timely payment of principal and interest. In doing so, the GSEs absorb the credit risk—the risk that a borrower would not make the required mortgage payment. Because of the contractual agreements that the Department of the Treasury has entered into with the GSEs in which Treasury has agreed to provide them with financial support, taxpayers are potentially exposed to the GSEs' credit risk. To reduce this risk, FHFA has directed the GSEs to transfer credit risk to other private investors. Congress is interested in several aspects of risk sharing, including the methods through which risk is being shared, how much risk is being shared, the effect of sharing risk on credit availability, and how effective the transactions are at protecting the taxpayer.
The Common Securitization Platform (CSP) is FHFA's attempt to improve the way in which MBS are issued. Fannie Mae and Freddie Mac each have their own securitization method (i.e., the process of transforming a pool of mortgages into MBS), but FHFA determined that their technology associated with creating and issuing MBS is outdated. Rather than invest in updating two systems, FHFA directed the GSEs to create one platform for securitizing mortgages. Congress is interested in multiple aspects of the CSP, including whether other private companies will be able to access it as well as the CSP's future ownership structure.
The Single Security is FHFA's initiative to alter the type of MBS that would be issued in the future. Currently, each GSE issues its own, distinct MBS. Fannie MBS and Freddie MBS are different securities governed by different legal contracts and trade at different prices. The Single Security would be a single MBS that the GSEs could issue through the CSP and would be traded in a single market. FHFA argues that the Single Security would enhance the liquidity of the MBS market—the ease with which MBS can be bought and sold—and remove the subsidy that Freddie Mac currently offers to keep its MBS competitive. Congress is interested in whether the Single Security will be effective in promoting liquidity in the MBS market and in what effect the Single Security will have on competition between the GSEs.
These three topics, although important, are just a subset of the many issues facing Congress as it considers broader reform of the housing finance system. Because FHFA's actions touch on the key issues of reform and, in some cases, are incorporated into legislative reform proposals, many in Congress have followed FHFA's actions closely. In addition, the Senate Banking Committee has reported the Financial Regulatory Improvement Act of 2015 (S. 1484), legislation that would codify FHFA's actions in some cases and would modify FHFA's actions in others.