With the election over, many hoped the Obama administration and Congress might soon get serious about housing finance reform, an issue that has languished for more than four years.

Yet policymakers do not appear in a rush to take on the future of Fannie Mae and Freddie Mac because of the political complexity of the issue, the government-sponsored enterprises’ recent positive economic performance and incremental steps taken by federal regulators to restructure the mortgage market.

“Quite simply, housing finance reform is not a burning fire,” said Isaac Boltansky, analyst at Compass Point Research & Trading. “We’re seeing home prices slowly and steadily improving, and” FHFA Acting Director Edward DeMarco “is methodically taking steps to remake the future of housing finance, but each of these individual steps is small enough ... to not warrant a reactive backlash from the White House or Senate Democrats.”

This is not to say there has been zero progress. While lawmakers and the Treasury Department have continued to wrestle with whether a government guarantee is essential to a functioning mortgage market, the FHFA has quietly been reforming the system from within.

The agency has put into place a joint servicing compensation initiative and laid the foundation for a securitization platform that lawmakers and the market could use at a later date. Led by DeMarco, the agency appears intent on ensuring that whatever Congress decides, the transition to a new system will have already begun.

But DeMarco and others worry that maintaining the status quo will only undermine the health of the country’s housing markets.

“The conservatorships of Fannie Mae and Freddie Mac were never intended to be long-term solutions,” DeMarco said in a Nov. 28 speech. “They were primarily meant as a ‘timeout’ for the rapidly eroding mortgage market — an opportunity to provide some stability while Congress and the administration decided on how best to rebuild our housing finance system.” The housing finance agency has made progress in reducing the GSEs’ footprint, but DeMarco acknowledged that “there is still much to be done.”

“It is vital to the long-term health of our country’s housing and financial markets that our elected leaders seek to bring the conservatorships to a conclusion, and to define the government’s role and requirements for housing finance in the future,” DeMarco said.

So far, however, lawmakers and the Obama administration have retreated from the question of what to do with Fannie and Freddie.

“I don’t think the House or Senate is clamoring for this debate, nor the administration,” said Richard Hunt, president and chief executive of the Consumer Bankers Association. “Jeb Hensarling” — incoming chairman of the House Financial Services Committee — “may start to address GSE reform, but that’s going to take some time.”

Momentum will likely be slowed even further as Fannie and Freddie’s performance continues to improve, observers said.

“It’s very hard to get all of those political forces to align, and as Fannie and Freddie come to be making some money on the margin, even though they are still massively insolvent, the pressure to do something comes off,” said Alex Pollock, an economist at the American Enterprise Institute. “You have a small probability that the status quo just lingers on because people say, ‘Well, look, here we are surviving from day to day.’ “

It’s also unclear whether Congress can reach consensus on how to move forward. Hensarling has pushed to fully privatize the GSEs, but the mortgage industry adamantly opposes such a move, and already has allies within the Republican caucus.

The Democrats, meanwhile, appear no closer to unveiling their own plan. The Obama administration released a white paper in February of last year with three differing options to address reform, but hasn’t offered any specifics. Treasury Secretary Timothy Geithner pledged to release more details this spring, but never did so.

A Treasury spokesman declined to comment.

“What have we seen over the last couple of years? Most politicians are interested in resolving this, but largely on their own terms,” said Brian Harris, an analyst at Moody’s Investor Services. “The resolution is going to be a give-and-take. Couple with the improving performance at both companies and the pressure to come up with a resolution is declining.”

James Ballentine, executive vice president of congressional relations at the American Bankers Association, said lawmakers will begin to engage on the issue next year even if legislation is unlikely to be passed. “Not that I see it done in 2013, but certainly that debate taking place in 2013, with the hope of getting it done by 2014,” Ballentine said. “It would be difficult for this Congress to go by without addressing that issue.”


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