Initially, the Federal Housing Finance Agency understood the conservatorships of the enterprises to be more of a temporary time out to stabilize the mortgage market.

However, five years later, Fannie Mae and Freddie Mac remain under FHFA control, and their exact role — and that of the larger housing finance system — awaits legislative resolution.

As a result, the Office of Inspector General highlights the major reform proposals on the table and the stakeholders who have offered them. The goal is not to promote a particular policy, but to provide useful information for the coming debates on Capitol Hill.

"The enterprises continue to dominate the secondary mortgage market where loans are purchased; bundled together into mortgage-backed securities; and then bought, sold or held as investments. Indeed, since September 2008, the enterprises have owned or guaranteed three out of every four mortgages in the U.S.," the OIG stated in its fifth semiannual report to Congress. 

Regardless of the source — be it industry experts, the Obama Administration or legislative proposals — the reform plans fall into one of three broad categories, including government model, private model and hybrid model. 

What the proposals have in common is that they have not progressed beyond general concepts and have been presented only at a high level. 

In general, the government model is a wholly owned government corporation that would replace the GSEs for the purpose of purchasing approved residential mortgage products, securitizing the products and then selling the bonds off to investors.

Approved mortgage originators would pay a guarantee fee to the corporation to secure timely payments of interest and principal on the resulting security. 

"This type of proposal requires the federal government to back all of the corporation’s obligations. Alternatively, the corporation under another variant of this proposal can guarantee the principal and interest payments of MBS without purchasing the underlying security similar to the security wrap provided by Ginnie Mae," the OIG explained.

Put simply, Fannie Mae and Freddie Mac would be converted into a government institution similar to Ginnie Mae under this model.

The private model would allow private companies to purchase and securitize mortgages from lenders and guarantee the payment of principal and interest on the resulting securities. 

Under this model, there is no explicit guarantee of the securities or companies by the federal government. Additionally, the key to most of the private label model options is the wind down of the existing enterprises over 10- or 15-year periods.

"In theory, this will incentivize  the private sector as guarantee fees increase to what the market will bear," the report noted.

There are many variants of the hybrid model that envision blended roles for the government and private sector.

In the broadest context though, all of the proposals in this group call for a private entity or group of entities to purchase and securitize mortgages from approved originators with some form of guarantee from the government.

"Interplay between the private issuance of a security and a governmental guarantee is at the heart of most hybrid proposals. The degree of government support tends to account for the variations among the proposals," according to the OIG.

Additionally, various hybrid models propose government intervention in times of economic hardships. However, in the event of market disruption — like the financial crisis in 2008 — the government-owned corporation would step in and stabilize the market during the crisis.

Ed DeMarco, current acting director of the FHFA, described the difficultly of fulfilling the agency’s oversight responsibilities in the midst of uncertainty about the future of the GSEs.

"At FHFA we are faced with a fundamental task of directing the operations of two companies that account for roughly three-quarters of current mortgage originations and have approximately $5 trillion in outstanding obligations and credit guarantees," DeMarco said.

He added, "FHFA’s task is complicated by the uncertain future of the enterprises and increasing dissatisfaction with various aspects of their business operations."

In a nutshell, it’s now time for policymakers to begin to make decisions about the government’s role in the mortgage market that will shape such a future.