The government takes several measures to prevent systemic risks in the mortgage market, aiming to safeguard the stability and integrity of the financial system and protect consumers from financial crises. Here are several key measures that the government takes to prevent systemic risks in the mortgage market:

1. **Prudential Regulation:** Government regulatory agencies, such as the Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Consumer Financial Protection Bureau (CFPB), oversee mortgage lenders, banks, and financial institutions to ensure compliance with prudential regulations and risk management standards. These regulations include capital requirements, liquidity requirements, and stress testing to assess the resilience of financial institutions to adverse economic conditions and mitigate systemic risks.

2. **Mortgage Underwriting Standards:** The government establishes underwriting standards and guidelines for mortgage loans to ensure that borrowers have the ability to repay their loans and avoid default. These standards may include requirements for verifying income, employment, assets, and credit history, as well as debt-to-income ratios and loan-to-value ratios. Strong underwriting standards help mitigate the risk of mortgage defaults and prevent systemic risks in the mortgage market.

3. **Government-Sponsored Enterprises (GSEs):** Government-sponsored enterprises (GSEs), such as Fannie Mae and Freddie Mac, play a central role in the mortgage market by purchasing and guaranteeing mortgage loans, providing liquidity to the secondary mortgage market, and supporting homeownership opportunities. The government provides oversight of GSEs to ensure their safety and soundness and mitigate risks associated with their activities.

4. **Risk Retention Requirements:** The government may implement risk retention requirements for mortgage lenders and securitizers to align the interests of lenders with those of investors and reduce moral hazard in the mortgage market. Risk retention rules require lenders to retain a portion of the credit risk associated with mortgage loans that they originate or securitize, discouraging risky lending practices and promoting responsible underwriting standards.

5. **Market Monitoring and Surveillance:** Government agencies monitor and surveil the mortgage market to identify emerging risks, trends, and vulnerabilities that could pose systemic risks to the financial system. These agencies collect and analyze data on mortgage lending activities, credit quality, borrower characteristics, and market dynamics to inform regulatory actions and policy responses aimed at mitigating systemic risks.

6. **Crisis Preparedness and Response:** The government develops crisis preparedness and response plans to address potential disruptions or distress in the mortgage market and the broader financial system. These plans may include contingency measures, liquidity support facilities, and coordinated efforts among regulatory agencies to stabilize markets, restore confidence, and prevent contagion during times of crisis.

Overall, government measures to prevent systemic risks in the mortgage market aim to promote financial stability, protect consumers, and maintain the orderly functioning of the housing finance system. These measures involve a combination of prudential regulation, market oversight, risk management standards, and crisis preparedness efforts to mitigate risks and safeguard the resilience of the mortgage market and the broader financial system.

The government takes the following measures to prevent systemic risks in the mortgage market 

The Financial Stability Board, an international body created in 2009, oversees the global financial system and defines systemic risk.

The government aims to ensure the safety of each part of the financial system independently.

The government focuses on fighting inflation while regulators tend to neglect the system as a whole.

The government uses macroprudential policy to limit systemic risk and sustain financial system stability.

The government develops a macroprudential approach to limit systemic risk and sustain financial system stability.