WASHINGTON In the seven years since the housing market started to fall apart, politicians of both parties have promised repeatedly to build a better system for financing the American dream of owning a home. There is little sign of progress.
Instead, the stopgap nationalization of housing finance has hardened into one of the most enduring legacies of the Great Recession. The federal government guaranteed about 87 percent of new mortgage loans last year, through Fannie Mae and Freddie Mac and the Federal Housing Administration, effectively setting the terms and providing the money for 9 out of 10 home purchases and refinanced loans.
President Barack Obama's speech Tuesday is the latest signal that Washington may finally be returning to the place where the financial crisis started. With the housing market on the mend, Obama said it was time to "wind down" Fannie Mae and Freddie Mac.
"I believe that our housing system should operate where there's a limited government role and private lending should be the backbone of the housing market," Obama said in Phoenix, a city that is a symbol of both housing booms and busts.
The president praised a bipartisan Senate effort to replace Fannie and Freddie with a system that would charge lenders for explicit government guarantees of some mortgage loans. And while there is a risk that the cost of borrowing would increase, Obama also said that he wanted to preserve the wide availability of the 30-year, fixed-rate loans that are preferred by most Americans.
House Republicans are proposing a sharper retreat, preserving the government's support for lending only to lower-income families. Proponents say it, too, would preserve the availability of 30-year fixed-rate loans, although they are not widely available in countries without government-backed systems.
"Washington has suddenly come alive on housing finance reform," said David Stevens, president of the Mortgage Bankers Association, who headed the Federal Housing Administration during Obama's first term. "We saw nothing substantive prior to this year, but now we're in a housing recovery and the odds have clearly improved given that both the House and Senate have weighed in."
For all the talk, however, it will be difficult to alter the government's role in housing finance, which has remained substantially unchanged for half a century notwithstanding Fannie and Freddie's move from informal to formal wards of the state. That is because Americans like cheap mortgage loans and it is hard to preserve the benefits without the costs of the current system.
Fannie, Freddie and the Federal Housing Administration backed 87 percent of new mortgage loans over the last five years, the same share they backed in 2012, according to estimates by Inside Mortgage Finance, a trade publication.
In the years before the crisis, less than 40 percent of the market was government-backed.
The government's heavy hand is holding down interest rates, helping the housing market and the broader economy to recover. The average rate on a 30-year loan was 4.37 percent in July, according to Freddie Mac, a full percentage point above rates earlier in the year but still very low by historical standards.
There is growing concern, however, that the government's risk aversion and the absence of private competition are suppressing the availability of loans. The average credit score for borrowers whose loans were bought by Freddie Mac rose to 756 in 2012 from 720 in 2006, according to its securities filings.
"Every few days somebody comes in who in my mind should be able to get a mortgage loan, and I have to turn them away," said Louis Barnes, a mortgage lender with the Premier Mortgage Group in Boulder, Colo. "It's like trying to push ice cream out of the wrong end of the ice cream cone."
Mortgage companies, backed by some federal officials, say Fannie and Freddie are being too aggressive in pursuing refunds from lenders when borrowers default, leading lenders to reject applicants they deem even mildly risky.
Other critics of Fannie and Freddie make the opposite point, that government support for housing, by making mortgage loans more affordable, is distorting the economy.
The government, they say, is subsidizing homeownership, with much of the benefit flowing to affluent Americans, at the expense of biomedical research or bridge repairs.
Most of all, demands for an overhaul of the current system reflect the confounding reality that the government, which spent vast sums cleaning up the last housing crash, is still promising to pay for the next one.
"Taxpayers are taking on trillions in risk for no discernible policy goal," said Karen Shaw Petrou, managing partner of Federal Financial Analytics, a consulting firm. "The government is running the market, but there is no coherent policy. You have taxpayers subsidizing mansions in much of the country."
The list of obstacles, however, only begins with the generic facts that the Republican House and the Democratic Senate are agreeing on legislation of any kind at a historically low rate and that both parties are bracing for fiscal battles this fall.
The real challenge is drafting a replacement.
The terms of the government's involvement in housing finance have remained substantially unchanged because the benefits are wildly popular with powerful interest groups, including banks, builders, real estate agents and, of course, homeowners.
Previous generations of politicians created Fannie and Freddie as a means of providing those benefits while pretending the costs did not exist. The companies were declared to be private during the fat years, and their shareholders profited handsomely, even as everyone understood that the government would stand behind the companies during the lean years.
That strategy has probably been exhausted, as Washington appears to have lost its appetite for implicit guarantees.
That leaves an unpalatable choice between making the cost of the system an explicit government obligation, or making it harder for Americans to buy homes. Any reduction in government support for the mortgage market is likely to increase the cost of home borrowing.
Plans to revive private sources of financing for mortgage loans also need to be harmonized with the government's countervailing efforts to reduce risk-taking by financial institutions.
Some analysts are worried that new rules and regulations will limit the ability or willingness of the market to finance mortgage loans.
Alex J. Pollock, a fellow at the American Enterprise Institute, said he was confident that lenders would learn to operate within the rules or learn to go around them but he added that the effort required to do so would be billed to the borrowers.
"Enterprising companies are very able to figure out how to deal with these regulations, but that's not free," he said. "The loans will cost more."