February 22, 2012

IT HAS BEEN 42 months since the Bush administration placed Fannie Mae and Freddie Mac under the control of their regulator, the Federal Housing Finance Agency (FHFA), and began pouring in cash to cover the mortgage-finance giants’ mounting losses. This has enabled Fannie and Freddie to continue propping up a housing market that otherwise would have crashed: They currently back two-thirds of all mortgages made. Taxpayer cost: $180 billion.

Though the worst of the losses are probably over for Fannie and Freddie, there is bipartisan consensus that their de facto nationalization is not a sustainable solution. There is no consensus, however, on what should replace these entities, whose fatal flaw was the combination of private, profit-motivated ownership and perceived government backing.

Full-blown change must await congressional action, which is unlikely before this year’s elections. Meanwhile, Fannie and Freddie continue to be subject to competing political agendas: The Obama administration and congressional Democrats urge them to funnel more aid to distressed homeowners, while Republicans warn against adding to the huge risks taxpayers face.

In the face of these cross-cutting pressures,, the acting director of the FHFA, Edward J. DeMarco, has steadfastly adhered to his legal mandate, which requires him to protect the long-term financial soundness of the institutions under his care, even if that means embracing only those ideas for mortgage relief that add the least possible risk to their balance sheets.

The latest example of Mr. DeMarco’s insistence on a long-term perspective is his “Strategic Plan” for the FHFA’s stewardship, pointedly subtitled: “The Next Chapter in a Story that Needs an Ending.” Mr. DeMarco lays out a program for reform that the FHFA can pursue under existing authority. Most salient is his proposal to modernize and consolidate the two companies’ systems for bundling mortgages into securities, so that a unified, up-to-date “platform” will be available for use by whatever successor organization Congress eventually designs. In addition, Mr. DeMarco plans to keep raising fees that Fannie and Freddie charge for guaranteeing securities, as Congress and the administration have authorized him to do. As the housing market heals, this will help “crowd in” private capital to the mortgage-security market.

It’s risky to be optimistic about housing. But declining unemployment and other good economic news may be helping the market turn the corner, at last — even without sweeping new government aid. According to Deutsche Bank, home sales reached 4.1 million in January, almost back to the 4.2 million level recorded in June 2010, when a $7,500 home-buyer tax credit was still in effect.

Under the circumstances, this looks like an opportunity to start slowly weaning housing off Fannie-Freddie life support, rather than to keep trying to use them to stimulate the economy. For the future, what the housing market needs is not stopgap aid but new institutions and a clear and consistent set of rules — for government and the private sector. Those are the fundamental issues, and Mr. DeMarco is wise to stay focused on them.