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CRS – An Overview of the Housing Finance System in the United States

An Overview of the Housing Finance System in the United States, Sean M. Hoskins, Analyst in Financial Economics; Katie Jones, Analyst in Housing Policy; N. Eric Weiss, Specialist in Financial Economics. March 13, 2013

  • “The characteristics of the borrower and of the mortgage determine the classification of the loan. What happens to a mortgage in the secondary market is partially determined by whether the mortgage is government-insured, conforming, or nonconforming. Depending on the type of MBS or mortgage purchased, investors will face different types of risks. Congress is interested in the condition of the housing finance system for multiple reasons. The mortgage market is very large and can impact the wider U.S. economy. The federal government supports homeownership both directly (through the Federal Housing Administration [FHA], Department of Veterans’ Affairs [VA], and U. S. Department of Agriculture [USDA]) and indirectly (through Fannie Mae and Freddie Mac). This support by the federal government means that the government is potentially liable for financial losses. Fannie Mae, Freddie Mac, and FHA currently are in financial difficulty, and Congress has shown an interest in exercising oversight and considering legislation to potentially address these difficulties. This report provides an overview of how the housing finance system works and provides context for housing finance-related policy issues that Congress might choose to consider.”
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