Nearly 10 months since the Treasury Department provided three options for a future housing finance system, Congress is still no closer to any reform.

A House subcommittee debated a proposal Wednesday from its chair, Rep. Scott Garrett, R-N.J., that directs the Federal Housing Finance Agency to set rules and regulations on a completely private mortgage securitization system.

The subcommittee approved the proposal late Wednesday night.

Rifts remain over the details, some so deeply political that no resolution can be reasonably expected until after the November elections reset a majority in a gridlocked Congress.

The Garrett proposal requires the FHFA to set new mortgage servicing rules, repeals the risk-retention requirement under the Dodd-Frank Act and prohibits any regulator from mandating principal reductions. Even more nuanced problems exist. The subcommittee pledged to continue working, but no agreement seems imminent.

Repeal of risk retention

Rep. Brad Miller, D-N.C., and Rep. Carolyn Maloney, D-N.Y., tried an amendment to the Garrett proposal that would cut language repealing the risk-retention rule. It was rejected.

Under Dodd-Frank, originators are required to retain 5% of the credit risk of mortgages written and sold to the secondary market. Rule makers are still working through the qualified residential mortgage, the exception to risk retention that requires, among other details, a 20% downpayment from the borrower.

"Many loans were securitized with poor documentation, no documentation, low credit quality, and originators took little interest, if any interest to how those loans performed in the future," Maloney said. "I think 5% is absolutely reasonable and to remove pushes down the same road that led us to this recession."

Garrett said the bill sets clearer and sharper standards for representation and warranty claims investors can bring if a faulty mortgage defaults. This, he said, would replace risk retention without the burden of new regulations.

"What would be the best protection as far as risk retention?" Garrett said. "We want a way to go back and recover if something is wrong. You do that through rep and warrants. And a system in place to make sure that will occur. Prior to this they were not clear, they did not have any faith in it. They didn't have to worry about it."

No place for CFPB

Rep. Miller tried another amendment to allow the Consumer Financial Protection Bureau to work with the FHFA on future mortgage servicing rules. Garrett and subcommittee Republicans quickly rejected it.

"CFPB is not up and running and is without a director," Garrett said. "There is a political unaccountability with the entity. Congress should have oversight of the rulemaking process. We should not always be delegating to bureaucrats in this situation. We may be doing that in the underlying bill, but here you are going the next step. Now you are saying the CFPB becomes involved and now you are lacking any accountability you would have from other players."

"We need to have some standards," said Rep. Maxine Waters, D-Calif. "When you complain that the CFPB does not have a director, I'm sure that you know why that there is no director."

Senate Republicans blocked a vote on Richard Cordray as the director of the CFPB earlier in December. They won't relinquish a filibuster until reforms establishing a commission instead of a director and moving funding under Congressional control.

It was another example of headway on a future housing finance system blocked by political maneuvers.

Fannie and Freddie first

There are currently five proposals in both the House and Senate that would assemble a future housing finance system and replace the GSEs at the same time.

There is one from Reps. Gary Peters, D-Mich., and John Campbell, R-Calif. Another came from Reps. Maloney and Gary Miller, R-Calif. The third from the House came from Rep. Jeb Hensarling, R-Texas. Two more came from the Senate, including a recent one from Sen. Johnny Isakson, R-Ga. and a previous one from Sen. Bob Corker, R-Tenn.

But so far, not one, including Garrett's, has made it out of subcommittee since the Treasury white paper was released in February.

"We do not see any immediate threat to the enterprises as there is no consensus on Capitol Hill about what to do with them," said Jaret Seiberg, an analyst with Guggenheim Partners.

Many on the House subcommittee wanted Fannie Mae and Freddie Mac taken care of before the private-label system is addressed. Along with Ginnie Mae, the government currently guarantees and thus funds 95% of the current mortgage market. Private issuance remains dormant, and many in the House want the larger players taken care of first.

"We're not addressing the right problem. This (Garrett bill) is not going to solve the overall problem with housing finance," Campbell said Wednesday. "What we should be doing is talking about those approaches winds down Fannie, Freddie and puts something else in place. Each of those gives some certainty to the market place. We haven't had a debate about all of this."

Rep. Stephen Lynch, D-Mass., introduced an amendment that would delay any requirement under the Garrett proposal until reform of Fannie Mae and Freddie Mac is completed.

"The discussion draft we're dealing with today doesn't even mention Fannie Mae and Freddie Mac," Lynch said. "It doesn't make sense to move forward on a private-label bill until this committee comes to a consensus on what to do with Fannie and Freddie."

"The journey of thousand miles begins with one step," Garrett replied.

"Usually the step is forward Mr. Chairman," Lynch said.

"This is one step to get the private market working again. How do you do it? You do it by providing a degree of certainty and a rule of law. If we say we're going to do nothing until the GSEs are gone … if we don't have an idea with regard to the rest of the marketplace, we will never be able to wean ourselves entirely from the GSEs," Garrett said.

Write to Jon Prior.

Follow him on Twitter @JonAPrior.