By Charles Lane

Published: Saturday, January 12, 2013, 8:56 p.m.
Updated: Saturday, January 12, 2013

Congress and the Obama administration have their hands full with the debt ceiling, the threat of budget “sequester” and the related battle over how much to raise taxes and cut entitlement spending. Even so, are they ever going to get around to fixing Fannie Mae and Freddie Mac?

The ultimate fate of these two giant government-sponsored enterprises, which back or guarantee most home mortgages in America, might be as important to the economy as the federal debt.

Yet their future has been unsettled since September 2008, when their regulator, the Federal Housing Finance Agency, seized control of them and declared them unable to withstand the housing market crash without an infusion of taxpayer dollars. And that infusion has been a massive $187.5 billion.

As intended, the bailout, or “conservatorship,” as it's formally known, prevented a collapse that could have reverberated around the world, where investors — including the central banks of China, Japan and other major nations — hold hundreds of billions of dollars worth of related securities.

But even though it has lasted 52 months (and counting), FHFA's conservatorship was never meant to be permanent.

As long as they're in limbo, a strategy can't be planned, and their employee morale will suffer. Above all, the housing market will remain too uncertain for the kind of private-sector commitments upon which housing's full recovery depends.

To its credit, the Obama administration has identified the “structural design flaws, combined with failures in management,” as “the primary cause of their collapse” — as a Treasury Department report put it in 2011. The administration argued that reform should avoid re-creating such public-private conflict.

Yet while the administration outlined several reform options, it did not push for any of them. (Republicans have floated plans with equal futility.) Meanwhile, the administration pressured FHFA to manipulate the agencies' finances in favor of underwater homeowners — ostensibly to free up cash for consumer spending and short-term economic growth.

Edward DeMarco, acting director of the FHFA, justifiably resisted using the agencies yet again as an off-budget cash cow. His reward was extravagant vilification from “progressives,” who began an election-year Internet campaign blaming him for the sour economy and demanding his firing.

Fannie and Freddie are shrinking, gradually, as well as stabilizing.

With administration support, they raised fees to securitize loans, and DeMarco recently agreed with Treasury on modifications to the bailout that will help slim them even faster.

But the time is ripe for a conclusive fix.

Despite the partisan wrangling and interest-group lobbying — not to mention legitimate policy disagreements — basic principles of a new mortgage finance system are widely agreed upon. There should be no more confusion of public mission and private profit; government support, if any, should be transparent and limited to the truly needy.

The American dream of home-ownership is a good thing. Alas, we've been trying to have too much of it.

Charles Lane is a member of The Washington Post editorial board.

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