The Obama administration appears to be trying to take a card from Republicans' playbook as it announces options this week for a new housing finance system.
While the administration's white paper has yet to be released, several sources said it will emphasize options that significantly reduce the government's role in the housing market.
Although the administration is likely to stop short of pushing for full privatization — the GOP ideal — its proposal suggests a willingness to at least scale back government involvement in the mortgage market.
"The administration is going to be laying out different options recognizing that there is a greater role for the private sector," said Diane Casey-Landry, the senior executive vice president and chief operating officer of the American Bankers Association.
"I think they have heard the message, 'There's been too much government support.'"
Options may include reducing the conforming loan limit, which is currently $729,750 but is slated to drop to $625,500 on Oct. 1; increasing guarantee fees charged by the government-sponsored enterprises; and reducing the current reliance on the Federal Housing Administration.
"It's an incrementalism kind of approach," said William Longbrake, an executive-in-residence at the University of Maryland. "Going in the direction of lessening the government involvement, everybody is on that page."
The administration, which will release its options paper Friday, is not expected to endorse a single option, sources said. Instead, it will offer several alternatives designed to lure capital back to the housing finance market and reduce the government's support.
By failing to push for a single plan, some critics said the administration is shirking its responsibility to outline a concrete future for the mortgage sector.
"They are heading for the woods," said Bert Ely, an independent consultant based in Alexandria, Va. "They are basically punting this to Congress."
Observers agreed that presenting options will do little to advance the ball in terms of achieving true reform, but some said it could provide an opportunity to draw some consensus between Democrats and Republicans.
"They are trying to have a constructive dialogue," Casey-Landry said. "I think you do that by laying out options without being too dogmatic by saying, 'It has to be this way.' If you lay out different options, you allow the flexibility for it to work it through the Congress. There are going to be a lot of different views within the Congress even within the parties."
While there are certainly strong philosophical differences between Democrats and Republicans on the future of housing policy, for the first time, they appear to be headed in the same direction.
"We had Republicans and Democrats on opposite sides of the issue. But this time they may not be on the same page, but they are in the same chapter, when usually they are totally in different books," said Brian Chappelle, a partner at the Washington consulting firm Potomac Partners.
But analysts said that did not necessarily increase the likelihood, apparently still remote, of legislation this year.
"It is easy to propose reducing the role of the government in housing finance, but much harder to enact legislation that would achieve these goals," wrote Jaret Seiberg, an analyst with MF Global's Washington Research Group, in a note to clients. "This is why we believe the odds remain against legislation even if the Obama administration appears more open to eliminating Fannie and Freddie than expected."
Seiberg argued that any legislation to lessen the government's role in housing finance would only result in "higher mortgage rates and downward pressure on home values. That is a tough vote for many lawmakers regardless of their party affiliation. This is why we question whether Congress will act."
Republicans would rather see a plan that would abolish Fannie Mae and Freddie Mac than endorse any plan by Democrats to maintain even the slightest government guarantee with the end goal being a return of the private market.
The administration is not expected to go that far. Administration officials have said several times that the government should have some role, though a limited one, in the mortgage market. In recent weeks, however, they have also emphasized that the government's role must be reduced.
"We still have a mess in the housing finance business," said Treasury Secretary Tim Geithner in an interview with PBS' Charlie Rose in Davos at the World Economic Forum last month. "It's now almost completely dependent on the government. We are going to lay out a set of reforms to crowd private capital back into the housing finance business, to dial back government involvement over time, and leave us with a system that will not be vulnerable to the really tragic colossal failures."