In his state of the union speech on January 28, 2014, Obama asked Congress to focus on mortgage finance reform in the upcoming year. He stated, “Since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again and keeps the dream of home ownership alive for future generations.”

There have been proposals in the Obama administration to overhaul Fannie Mae and Freddie Mac, the mortgage giants which own or guarantee about 60% of all mortgages in the United States. These government-sponsored enterprises (GSEs) have prospered for decades by buying and selling mortgages to provide capital to lenders and borrowers. However, when the housing bubble burst in 2008, the federal government took ownership of the mortgage giants, costing billions of dollars in taxpayer dollars to bail the companies out of financial ruin.  The housing market is now in recovery and Fannie Mae and Freddie Mac are profiting once again, but many government officials fear that another financial crisis is still possible. The goal is to take away Fannie Mae and Freddie Mac’s monopoly on the mortgage market, limit the federal government’s role and risk, and to focus on private lending instead. However, it will take years before the current system is completely overhauled and replaced with one dominated by private lenders.

It is imperative that brokers understand that the housing market is on its path to recovery, but may be facing drastic changes over the next two to five years. Middle class consumers may have difficulty obtaining a 30-year mortgage in a market that is run by private lenders unless the reforms allow for some substantial governmental intervention. We may only be in the early stages, but these proposals in Congress will lead to one of the biggest reforms this country has seen in the last decade.