The Obama administration on Friday will unveil long-awaited proposals for what could lead to the most sweeping changes to the way Americans buy their homes in decades.
The housing white paper presents three different visions for replacing mortgage finance giants Fannie Mae and Freddie Mac, which are set to be slowly wound down.
The paper does not make a single recommendation, but broadly outlines alternative possibilities to reduce the government's role in the mortgage market.
That strategy aims to open a dialogue with Republicans that would lead to a consensus outcome within a couple of years, said Michael Barr, a professor at the University of Michigan and a former Treasury Department official.
Fannie Mae and Freddie Mac buy up mortgages made to certain standards and sell them to investors to free up cash for lenders to lend again.
The two firms were seized by the Bush administration in late 2008 amid mounting losses from loans gone bad and have since taken more than $150 billion in taxpayer aid.
Senate Democrats will have to come to an agreement on any long-term solution with Republicans who took control of the House of Representatives in January.
Texas Representative Jeb Hensarling wants to eliminate Fannie Mae and Freddie Mac within five years, allowing the private sector to take over the government role.
The fourth highest ranking House Republican has not yet formally introduced his bill to do that, and it is unclear when he might do so.
Democrats are generally more supportive of a government role in the mortgage market and argue that removing the federal backstop for mortgages would make loans more expensive and price many middle class Americans out of home ownership.
I want to make sure the window of opportunity for home ownership isn't closing for the next generation of homeowners, said John Taylor, chief executive of the National Community Reinvestment Coalition, an association of community-based groups that promote access to basic banking services for working families.
The housing industry, including real estate agents, homebuilders and mortgage bankers is also supportive of some government role for backstopping mortgages and have already started pushing back against some of the most aggressive privatization proposals.
(Reporting by Corbett B. Daly; Editing by Phil Berlowitz)