STEVE INSKEEP, host:

Of all the government bailouts in the financial crisis, one of the most expensive was the rescue of Fannie Mae and Freddie Mac. The Obama administration had promised to offer a restructuring plan by today, but that plan has been delayed.

NPR's Scott Horsley reports.

SCOTT HORSLEY: Before their takeover two years ago, Fannie and Freddie existed in a kind of gray area. Both were independent, for-profit companies that helped finance home mortgages. But investors always suspected if Fannie and Freddie got into trouble, the government would bail them out. That turned out to be correct. And Alex Pollock, of the American Enterprise Institute, says it was a recipe for trouble.

Mr. ALEX POLLOCK (American Enterprise Institution): You could be a private company, and you might succeed and make a fortune, or you might go broke and lose everything. That's fine. Or you can be part of the government. But you can't be both at the same time.

HORSLEY: The implicit guarantee of government help allowed Fannie and Freddie to funnel lots of money from investors into the ballooning housing market. Pollock says when the balloon popped, the investors were taken care of, but taxpayers were stuck with a big bill: more than $130 billion so far.

Mr. POLLOCK: Ordinary American working stiffs are being taxed so that the bondholders can get paid off at par, when they should be taking losses on the investments they made. But they won't.

HORSLEY: There's widespread agreement now that Fannie and Freddie's model was broken. But there's plenty of disagreement about how much that contributed to the overall financial crisis - and about what should come next, as Treasury Secretary Timothy Geithner said last summer.

Secretary TIMOTHY GEITHNER (Treasury Department): It's safe to say there's no clear consensus yet on how best to design a new system. But this administration will side with those who want fundamental change.

HORSLEY: The shape of that change is still forming, five months later. Conservatives like Pollock say the government should generally get out of the business of bankrolling mortgages, and leave most of that market to the private sector. But bond investor William Gross, of PIMCO, is skeptical.

Mr. WILLIAM GROSS (Bond Investor, PIMCO): Banks were the originators of these mortgages that went into Fannie and Freddie portfolios. And so to suggest that they can do a better job than Fannie or Freddie is certainly the pot calling the kettle black here.

HORSLEY: Gross says he'd be reluctant to invest in mortgages that didn't have government backing, unless the homeowners made down payments of, say, 30 percent, or paid a significantly higher interest rate.

Sarah Rosen Wartell, of the left-leaning Center for American Progress, says without some government support, the classic 30-year, fixed-rate mortgage would be out of reach for many families.

Ms. SARAH ROSEN WARTELL (Center for American Progress): The home is still the place where families have been able to build up for their retirement, for their entrepreneurial opportunities, to pay for their kids' college. I'm not sure those opportunities would be there anymore.

HORSLEY: Wartell proposes an alternative, in which private capital would bankroll mortgages, but there would also be a government insurance fund to guarantee those investments. Unlike Fannie and Freddie, the government would charge investors a fee to pay for that insurance. And it would only be available for high-quality mortgages - not the kind of so-called liar loans that were all too common during the housing bubble.

Ms. WARTELL: One lesson we've learned, crystal clear, is that we ought to be only supporting safe, secure, sustainable loans that it's rational to assume home buyers have the ability to repay.

HORSLEY: The fight over Fannie and Freddie is part of a larger debate about the appropriate role for government in supporting the U.S. housing market. Right now, that market is still fragile and heavily dependent on the government-run giants for new home loans. PIMCO's Gross says whatever the long-term future of housing finance, the immediate future is likely to be as messy as the present.

Mr. GROSS: It is definitely a food fight. And it will take time to resolve this. And cans will be kicked for several months, at least - and maybe even several years.

HORSLEY: The administration now says it will release its proposal for fixing Fannie and Freddie by mid-February.

Scott Horsley, NPR News, the White House.

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