In the wake of continuing foreclosures and problems with loan modifications, the Obama administration is pushing a plan to dramatically reduce the government's role in the nation's mortgage market.
During the financial meltdown in 2008, the government rescued mortgage giants Fannie and Freddie. The Obama administration's proposals would gradually phase the agencies out and shift more of the risk of potential losses to the private sector.
There's widespread agreement that some reform is needed. But some fear reform could lead to higher mortgage rates, and make buying a home more expensive and available to fewer people.
Together, Fannie Mae and Freddie Mac own or guarantee about half of all mortgages in the U.S. -- nearly 31 million home loans worth more than $5 trillion. Among the government's ideas for reforming the agencies are requirements for larger down payments for home loans.
Minnesota Housing Finance Agency commissioner Mary Tingerthal worries an overhaul could result in higher mortgage rates that would chip away at the bedrock of sustainable homeownership.
"The 30-year, fixed-rate mortgage really is a cornerstone, in my opinion, of what really gives families the confidence to go out and invest their hard-earned money in buying a house and being a critical part of a community," she said.
Fannie and Freddie buy up home loans from banks, package them into mortgage-backed securities with a guarantee against default and sell them to investors around the world. Doing this helps lenders provide the kind of affordable, 30-year fixed home loans that homeowners want.
That practice of securitizing mortgages has come under fire for fueling the housing collapse. But Tingerthal said the buying and selling of loans to investors by itself wasn't the problem, and she also dismisses the notion that expanding homeownership to low and moderate income people alone led to the crisis.
She said things took a turn for the worse for Fannie and Freddie when they began beefing up their portfolios with outside risky subprime loans -- the kind of loans that led to massive profits for Wall Street but ultimately blew up, bringing the housing market down, too.
Tingerthal said she is hoping reforms to Fannie and Freddie don't eliminate what she sees as an important tool for affordable housing development.
"I fear that the negative press around Fannie and Freddie and mortgage backed securities will cause us to dismantle a system that at its core really works very effectively," she said.
The history of this system has its roots in the Great Depression, when the federal government put limits on the risks banks could take. They also instituted deposit insurance and put other protections in place that paved the way for decades of housing growth.
Today, Fannie and Freddie have a combined mortgage portfolio of almost $1.5 trillion.
Kevin Filter's company, Oak Grove Capital in St. Paul, works with Fannie and Freddie to make loans for housing development nationwide. Filter said Fannie and Freddie's role in financing multifamily housing is crucial and he's hoping the fears over a repeat of the subprime crisis don't push the reform effort too far.
"Obviously that would have a dramatic impact in any number of areas of the housing industry, a very negative impact on the economy, particularly in the affordable housing arena and in the senior housing arena," he said.
Multifamily projects generally require developers to invest more upfront. Filter says that bigger investor stake has helped Fannie and Freddie's multifamily business weather the drop in housing values much better than their single family business.
During the boom it became easier to buy a home with little or no money down. The Obama administration proposals would require buyers to put at least 10 percent down on any mortgage guaranteed by Fannie Mae or Freddie Mac.
Right now the proposals are just that -- proposals. Some members of Congress have started weighing in, but analysts say nothing is likely to happen overnight.