Although many elected officials have called for and presented proposals for reducing the government's footprint in the mortgage market, the current status of the housing market is forcing government-sponsored entities (GSEs) to continue to support the availability of credit.

According to a report in The Wall Street Journal, the government is caught between continuing to prop up a weak market through their conservatorship of Fannie Mae and Freddie Mac and seeking ways to entice private capital back into the housing sector.  Falling home prices and low returns on mortgage-backed securities continue to push private investment away.

Some plans have called for the government to increase fees charged by the GSEs and reduce lending limits as tools to open up opportunity for private capital investors.  However, in the face of low confidence in the housing sector, such efforts could backfire, further eroding the availability of credit and damaging confidence in an already weak economic recovery.

"I'm sort of the champion of private capital, but I'm also not naïve," says Lewis Ranieri, the pioneer of the home-mortgage-bond market. "At this point, it really just doesn't work because we don't have those certain fundamental issues resolved…. The damage done to the institutional and retail investor in this crisis was massive, and it was on many levels."

Many investors see the key to creating a viable private market will require strengthening of mortgage disclosures and providing clearer provisions to kick back loans that do not meet certain agreed upon standards.  Additionally, of course, private investors are looking for some sure signs of stabilization in housing prices before jumping back in.