A Democrat and Republican House subcommittee will begin Wednesday to debate the future of mortgage finance giants Fannie Mae and Freddie Mac, which back or guarantee more than $5 trillion worth of U.S. mortgages.

The government-sponsored enterprises have been under federal control since September 2008. The goal was to calm the growing panic from the financial crisis.

Some Republicans argue it’s time for the government and the GSEs to part ways, while some Democrats say it shouldn’t end yet but the role of government support should change.

Fannie and Freddie securitize about 90 percent of all new mortgages.

The Obama administration is expected on Friday to release a report detailing its plans for the government’s role in the mortgage market.

Meanwhile, many groups have come forward to propose their own solutions for the fate of Fannie and Freddie, which keeps mortgage money accessible to consumers even during economic downturns.

For example, the conservative American Enterprise Institute plan calls for gradually privatizing Fannie and Freddie over the next five years and allowing the private sector to take on more of the secondary market for mortgages.

On the other hand, the liberal Center for American Progress calls for the creation of Chartered Mortgage Institutions that would pool mortgages into bonds and be private but regulated by a federal agency. It would also create an insurance fund in which issuers could purchase credit insurance on mortgage-backed securities.

The National Association of REALTORS® has argued that the federal government should continue to have a role in maintaining accessible, affordable mortgage capital even when private sector lenders pull back.

Source: “The Great Debate: What to Do About Fannie Mae and Freddie Mac, McClatchy-Tribune Information Services (Feb. 9, 2011)
and “Plans to Overhaul U.S. Housing Finance System,” Reuters News (Feb. 8, 2011)