The 112 th Congress is considering legislative proposals to limit the government's present and future risk from Fannie Mae and Freddie Mac. The two entities are government-sponsored enterprises (GSEs)—congressionally chartered, stockholder-owned companies with special legal privileges and special obligations to facilitate the flow of mortgage funds. Their basic business includes purchasing mortgages that have been issued by others, pooling and guaranteeing the mortgages into mortgage-backed securities (MBS), and either selling the MBS to investors or holding the MBS "in portfolio" as an investment. In recent years, Fannie Mae and Freddie Mac together were responsible for nearly half of the nation's outstanding residential mortgage debt. In 2008, the enterprises' capital proved to be inadequate as mortgage defaults and foreclosures increased more than anticipated, and the cost of borrowing to finance their investment portfolios increased. To support the mortgage markets during the financial crisis of 2008-2009 and to keep these enterprises in business, the U.S. Department of the Treasury has purchased more than $175 billion of special preferred stock. In addition, Treasury and the Federal Reserve (the Fed) have provided mortgage market support by purchasing nearly $1.4 trillion in MBS from investors in the open market. Treasury's purchase of more than $175 billion in preferred stock is one element in contracts that require the enterprises to pay an annual 10% cash dividend on the Treasury funds. Based on their past histories, it is not clear that the enterprises could survive without Treasury's continued support. Some of the bills that have been introduced are likely to reduce the enterprises' future size by reducing or eliminating certain advantages conferred by their charters. More specifically, one category of proposed legislation would increase their cost of doing business (e.g., H.R. 1222 ). It is likely that the increased costs would be passed onto the enterprises' business partners in the form of lower prices for mortgages and higher interest rates to borrowers. This would potentially allow other securitizers to compete more effectively with the enterprises. A second group of bills would impose new limitations on the types of mortgages that the enterprises can purchase, leaving more of the mortgage market to their competition (e.g., H.R. 1227 ). A third category of changes contained in some of the bills would increase regulatory oversight and disclosure (e.g., H.R. 31 and H.R. 1225 ). The proposed increased capital requirements would be another source of increased costs, but would also reduce risks. New requirements to file with the Securities and Exchange Commission (SEC) would eliminate a competitive advantage enjoyed by the enterprises and require them to adhere to some of the same rules as their competitors. A fourth category of legislative proposals would set a deadline for the enterprises to return to stockholder control or to be dissolved; in the event they were to return to stockholder control, the bills would phase out their charters (e.g., two pairs of companion bills H.R. 408 / S. 178 and H.R. 1182 / S. 693 ). A fifth category of legislative proposals would make provisions for replacing the enterprises in the secondary mortgage markets (e.g. H.R. 1859 and H.R. 2413 ). Table 1 summarizes and illustrates differences in provisions of the various bills introduced in the 112 th Congress. The enterprises came to their current financial difficulties following a period of increasing losses due to mortgage delinquencies, coupled with inadequate capital. In September 2008, Fannie Mae and Freddie Mac separately agreed to enter voluntary conservatorship, which entailed giving their regulator, the Federal Housing Finance Agency (FHFA), management and control of the enterprises. At the same time, the Treasury signed separate contracts with Fannie Mae and Freddie Mac to provide whatever financial support might be needed to keep them solvent. Homeowners and potential homeowners indirectly depend on Fannie Mae and Freddie Mac as a source of mortgage money. The enterprises are prohibited from making loans directly to borrowers; instead, they purchase mortgages that lenders have already made. They package the mortgages into MBS and either keep them "in portfolio" or sell them to institutional investors. Sometimes the originator "swaps" the mortgages for an MBS backed by the same loans. The advantage of a swap is the addition of the enterprise's guarantee that the loans will be repaid. Fannie Mae and Freddie Mac back almost half of the home mortgages in the nation. The Obama Administration's report on the future of the enterprises and the housing finance system presents three broad alternatives: a privatized system with existing government mortgage programs (Federal Housing Authority, Veterans Affairs, and U.S. Department of Agriculture) more narrowly targeted toward groups based on income or first-time homebuyer status; a privatized system with a government guarantee only during a crisis; and a privatized system with backup government reinsurance of private mortgage insurance. As of this writing, no legislation has been introduced to implement any of the Administration's proposals; therefore, they are not discussed further in this report. If and when legislation is introduced, it will be incorporated into this report. More detail on the proposals is contained in CRS Report R41719, The Obama Administration's Report on "Reforming America's Housing Finance Market": Implications for Fannie Mae and Freddie Mac , by [author name scrubbed]. This report continues with summaries of legislation that has been introduced in the 112 th Congress. Most of the bills address individual areas of concern, such as executive compensation, but two pairs of companion bills would reform a number of areas. This section analyzes legislation that has been introduced and that would make changes to a single area of the enterprises' operations. H.R. 31 , Fannie Mae and Freddie Mac Accountability and Transparency for Taxpayers Act of 2011, would require the director of FHFA to make quarterly reports on Fannie Mae and Freddie Mac in 12 specific areas: 1. total liabilities and the risk to the federal government; 2. executive compensation and bonuses; 3. the impact of reducing the conforming loan limits at the end of FY2011; 4. foreclosure mitigation efforts; 5. mortgage fraud prevention efforts; 6. communications with the Federal Reserve and Treasury regarding the purchase or sale of enterprise securities; 7. enterprise investments outside of their mission; 8. reasons for equity (preferred stock) investments by Treasury; 9. capital levels, portfolio size and their impacts on the safety and soundness of the enterprises; 10. underwriting standards; 11. mortgage buyback policies; and 12. the enterprises' actions that affected enterprise securities, in particular, preferred stock issued before September 6, 2008. The director could include additional information that he "considers relevant or important with respect to the enterprise, and the activities and condition of the enterprise." The FHFA inspector general (IG) would be required to review the reports and inform Congress of his findings. The bill would require both the reports and the IG's comments to be posted on the FHFA website. The bill would also require the IG to examine FHFA's loss mitigation policies, including the impact of principal reduction on the enterprises' financial condition and the nationwide foreclosure rate. There is some overlap between these reporting requirements and current reports. For example, the FHFA's quarterly Report on the Enterprises' Financial Performance covers capital, investments, and loss mitigation activities. The FHFA's monthly Foreclosure Prevention and Refinance Report also covers loss mitigation efforts. FHFA has issued a report on the effect of reducing the conforming loan limit. On April 5 and 6, 2011, the House Subcommittee on Capital Markets and Government-Sponsored Enterprises of the Committee on Financial Services marked up H.R. 31 and forwarded it to the full committee. Even without this legislation, FHFA could send such quarterly reports to Congress, and the IG could review the reports. The bill indicates to FHFA and the FHFA IG that Congress attaches particular importance to these areas of oversight. H.R. 463 , Fannie Mae and Freddie Mac Transparency Act of 2011, would make the enterprises subject to Freedom of Information Act (FOIA) requests by making them federal agencies for the purpose of FOIA compliance. No action has been taken on H.R. 463 . H.R. 1221 , Equity in Government Compensation Act of 2011, would limit the pay of the enterprises' employees. Current executive compensation packages, previously approved by FHFA, would be suspended and declared to be the sense of Congress that any pay in 2010 exceeding Level I of the Executive Schedule ($199,700) or the Senior Executive Service ($179,700) should be turned over to the Treasury. Other employees of the enterprises would be paid according to the federal government's general schedule (GS), with a maximum pay in the Washington, DC, area in 2011 of $155,500. Executive compensation would be based in part on the enterprise's profitability. The enterprises would be covered by Troubled Asset Relief Program (TARP) provisions on executive compensation and corporate governance. The bill states that enterprise employees shall not be considered federal employees. On November 15, 2011, the House Financial Services Committee ordered the bill to be reported as amended. As conservator, FHFA currently has the authority to reject enterprise salaries without this legislation, but this bill would remove FHFA's discretion. As regulator, 12 U.S.C. 4518 authorizes FHFA to prohibit and order an enterprise to withhold executive compensation that is "not reasonable and comparable" to that provided by similar companies. The same section prohibits FHFA from actually setting salaries or salary ranges. H.R. 1222 , GSE Subsidy Elimination Act of 2011, would require the enterprises to charge a guarantee fee that reflects the risk of the mortgages purchased and the cost of capital that a totally private company would charge. FHFA would have the option to either phase in the higher fee over two years or to impose it at the higher level two years after enactment.