With respect to long-term reform, the  Administration has proposed the following three options, each of which dif fers in  both the structure and scale of the federal government’ s future role in the housing finance system: The Administration’s proposal is intended to shape the debate in Congress as the Senate Banking Committee and the  House Financial Services Committee consider legislation reforming the housing finance market. It is possible that the  Administration may release an updated housing finance reform proposal to further stimulate the debate around housing finance  reform. It is unclear whether housing finance reform legislation will be adopted and, if so, what form it will ultimately take. FHFA Acting Director Edward J. DeMarco sent a proposal to Congress outlining a strategic plan for the next phase of the  conservatorship of the GSEs in February 2012 and updated this plan in May and October 2012.  The plan identifies three  strategic goals for this next phase: (1) build a single infrastructure to support the mortgage credit business, including mortgage  servicing agreements and requirements placed on companies that service mortgages; (2) reduce the GSE presence in the market  and replace them with private sector participation; and (3) maintain foreclosure prevention activities and credit availability for  new and refinanced mortgages.  We believe the most significant components of this plan are: (i) the FHF A’s recommendations  regarding shifting mortgage credit risk to the private sector through increasing the GSE guarantee fee pricing; (ii) establishing  loss-sharing arrangements that require private investors to bear most or potentially all of the risk; and (iii) expanding reliance  on mortgage insurance by requiring deeper mortgage insurance coverage on individual loans or through pool-level insurance  policies to insure a portion of the mortgage credit risk currently retained by the GSEs.  At this time, it is not possible to estimate  the impact of the FHFA’s proposed strategic plan on our business. While Congress may preserve a role for private mortgage insurance as it considers housing finance reform legislation,  there is a possibility that new federal legislation could change the role of private mortgage insurance going forward by , among  other items, changing the combined LTV ratio for which private mortgage insurance is required, changing the role of the GSEs  in the secondary mortgage market, eliminating the requirement for private mortgage insurance, or continuing to change the  GSE guarantee fees and FHA premium pricing. See “Risk Factors— Because most of the mortgage loans that we insure are sold  to Freddie Mac and Fannie Mae, changes in their charters or business practices could significantly impact our mortgage  insurance business ” and “— Our mortgage insurance business faces intense competition. ” We cannot predict whether any of the  existing proposals will be adopted or how any new laws, regulations or initiatives that may be proposed will impact our  business. Despite their various proposals, neither the FHFA, the Administration, or Congress has taken significant actions to wind  down the GSEs. In the second quarter of 2012, both Fannie Mae and Freddie Mac reported profits for the first time since the  fourth quarter of 2006.  Also, the second quarter of 2012 was the first time that neither GSE had to request financial support  from the Treasury. This development may slow or delay progress on reform of the GSEs and the housing finance system in the  U.S.  The Dodd-Frank Act contains many new requirements and mandates significant rulemaking by several regulatory  agencies to implement its provisions. While several of those rules have been finalized, the full scope of the Dodd-Frank  Act and  its impact on our mortgage insurance and financial guaranty businesses remain uncertain at this time. 8.  The Dodd-Frank Act •  Option 1: Privatized system of housing finance with the federal government’ s role limited to providing assistance  for narrowly targeted groups of borrowers, leaving the vast majority of the mortgage market to the private sector; •  Option 2: Similar to Option 1, but with ability for the federal government to scale up to a lar ger share of the  market if private capital withdraws in times of financial stress; and •  Option 3: Similar to Option 2, but with assistance to low- and moderate-income borrowers and with the federal  government providing catastrophic reinsurance behind private capital for securities of a tar geted range of  mortgages. 53