The Obama administration's reluctance to put forth a plan for Fannie Mae and Freddie Mac only increases the chance that the GSEs will become permanent arms of government.
Right now, the administration is unwilling to provide an outline for the GSEs' future because doing so would leave it vulnerable politically and could upset the still-fragile mortgage markets.
But the longer the two companies stay in limbo, the harder it will be to chart a new course for them, observers said. Many in the marketplace have grown used to them as de facto nationalized entities; figuring out how to distance them from the government would probably be a complex and lengthy process.
"We jumped in with both feet into the GSEs with no plan for an exit strategy, and we're paying the price for it now," said Howard Glaser, a consultant and former Department of Housing and Urban Development (HUD) official. "We have created an addiction to federal support for the housing market that is going to be very difficult to wean off of."
Brian Gardner, an analyst at KBW, agreed that the longer the situation drags on, the harder it becomes to resolve.
"Any time you nationalize an industry, it becomes tougher over time to privatize it," he said. "At some point, Congress is going to have to deal with this. The longer they put it off, the tougher it will be."
He and others said, however, that Congress lacks the will or ability to deal with the issue now.
"Congress is not equipped, nor is the market equipped right now, for the GSEs to be taken out of conservatorship," Gardner said.
The government seized Fannie and Freddie in September 2008 and kept them afloat with $112 billion in federal aid. Reversing its original plan, the Obama administration pledged late last year to cover unlimited losses through 2012 for the enterprises, removing the earlier cap of $400 billion.
Since the takeover, the government has increasingly used the GSEs for its own ends. The Obama administration gave the two a large role in its plan to stem foreclosures, and they are a linchpin in the effort to ensure the mortgage market continues to function.
As a result, the administration has put off developing any plan for their post-conservatorship operations.
Treasury Secretary Tim Geithner originally pledged an outline when the budget was released last month, but the administration devoted just one sentence in the document to the GSEs' future. Nevertheless, HUD Secretary Shaun Donovan said shortly afterward that the administration would have a plan "soon."
Late last month, however, the administration reversed course, saying it would release no plan until next year.
Instead, Geithner said last week, the Treasury plans to seek ideas on the companies and the future of the mortgage market itself in response to questions it will put out for comment.
A plan for Fannie and Freddie cannot be developed in isolation, Geithner said, but instead must address the entire mortgage market and what the government's role should be.
"We want to take a careful look at the entire government agencies that act in the housing market and the set of policies that helped contribute to this terrible crisis," he told lawmakers at a hearing. "We are going to need fundamental reform in the housing market, not just Fannie and Freddie."
The administration will propose broad objectives to guide a GSE overhaul, he said, at a House Financial Services Committee hearing scheduled for March 23.
But there also are political and economic incentives to leave the GSEs alone as long as possible.
For one, the housing market remains jittery when any key player discusses reforming the GSEs and has become reliant on their current role.
"As far as the eye can see, we are relying on Fannie and Freddie as load-bearing support for the housing market," said Glaser, the former HUD official. "We can't live without them."
House Financial Services Committee Chairman Barney Frank caused a minor panic among investors two weeks ago when he said that GSE debt was not backed by the government. The statement was true, legally speaking, but it caused some to doubt whether the Treasury was committed to propping up the companies.
Frank and the Treasury later reiterated the government's support for Fannie and Freddie, but the episode illustrated just how tricky GSE issues can be.
Even if the government wanted to step back, it is not clear that it could do so easily.
Rajiv Setia, a Barclays Capital fixed-income analyst, said that the GSEs are essential to the market.
"Whether they like the GSEs or not … the guarantee function that they facilitate is going to be around because there's no choice," he said.
The private sector has taken a secondary role in housing finance, primarily originating Jumbo loans, but banks are no longer in a strong position to make loans beyond those to the most creditworthy borrowers.
Analysts warn that, if the administration wants to decrease the reliance on GSEs, it must make a conscious effort to make room for the private sector in its housing planning.
"It's got to withdraw leverage from the system very, very, very gradually," Setia said, "because if they do it too quickly they risk another letdown in housing prices."
The government has no incentive to disengage itself, observers said. It enjoys the benefits of nationalization, which lets it direct the GSEs and ignore shareholders, without a formal nationalization's drawbacks, which would force the government to put the enterprises on its books.
Taking any action could also open a political can of worms. Republicans have blamed Democrats as too close to the GSEs and warn that any effort to nationalize them smacks of socialism. Many GOP members would like to privatize or eliminate them altogether.
Most analysts said it would take five to 10 years before the government even tries to deal with the GSEs.
"The longer they remain in existence, the more they seem kind of normal," said Peter Wallison, a scholar at the American Enterprise Institute and a longtime GSE critic.