Democrats conceded that changes are needed in Fannie and Freddie, which have swallowed $150 billion in federal aid since the government took them over in September 2008. But they cautioned that care must be taken to avoid jeopardizing the popular 30-year fixed rate mortgage and the access to the housing market that the two companies have helped provide to millions of moderate-income families.
Neither Republicans nor Democrats are ready to push specific plans or timetables for overhauling Fannie and Freddie through Congress. That underscores divisions over how to fix the way the nation's $11 trillion housing market is financed, and a hesitation over making drastic changes in such an enormous sector even as the economy starts rebuilding strength after its deep swoon of the past three years.
Fannie and Freddie, along with other federal agencies, have accounted for about 90 percent of new mortgages over the past year, reflecting a lingering hesitancy by private lenders to re-enter the housing market. Congress' work on reshaping the country's mortgage finance system is expected to take months or longer.
At a hearing Wednesday of the House Financial Services subcommittee that oversees the two housing giants, Rep. Scott Garrett, R-N.J., said his goal is "to ensure that we put an end to this destructive and costly housing finance policy that protects taxpayers and actually strengthens communities instead of destroying them."
Garrett, who chairs the subcommittee, said afterward that he wants to see "eventually no government backstop for any entity" like Fannie and Freddie. He said he had no specific schedule for moving legislation through his committee.
Many Republicans argue that Fannie and Freddie were a major cause of the nation's housing crisis of falling home prices and numerous foreclosures by backing numerous subprime loans - mortgages that quickly became worthless because they went to people who could not afford them.
Rep. Jeb Hensarling, R-Texas, a member of the House GOP leadership, said the main question is "how do we transition to a competitive market without taxpayer guarantees, and how soon can we get there."
But there is some reluctance in GOP ranks to do anything too abruptly. Rep. Michael Fitzpatrick, R-Pa., said he wants the government's rule wound down but warned that doing it too quickly could harm the economy.
"We can't allow prudence to be the enemy of progress," he said.
Democrats say Fannie and Freddie merely followed the private sector, which set the pace for making subprime loans, and performed the constructive functions of keeping 30-year mortgages affordable and helping lower income families become homeowners.
Rep. Maxine Waters, D-Calif., the subcommittee's top Democrat, said she is open to any plan that takes steps like preserving the 30-year mortgage and helping all qualified borrowers get loans.
Waters said that while the details of any housing finance overhaul are crucial, "I think it's even more important that we make clear what values underpin our vision for the future."
In coming days, the Treasury Department is expected to release a report stating the Obama administration's views on how to reshape Fannie and Freddie. That report is expected to propose several options for revamping the country's housing finance system, including phasing Fannie and Freddie out and gradually shrinking the government's role in mortgage financing, according to lobbyists who have heard descriptions of the plan.
Whatever the House decides to do this year - if anything - the Democratic-run Senate and President Barack Obama are likely to have their own, differing views.