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Obama's Promise of GSE Reform Still Years Away

NEW YORK ( TheStreet) -- President Obama's call on Tuesday to wind down government-sponsored enterprises Fannie Mae (FNMA) and Freddie Mac (FMCC) after a long period of silence is a sign that the White House is ready to wade into the debate on the government's role in housing and the future of housing finance.

It also served as another reminder of the broad support in Washington to wind down the agencies even though some in the investor community are betting against the odds the GSEs will return to private hands again.

The president's vision for the future of housing finance broadly echoed the bipartisan Corker-Warner Senate proposal that supports the idea of a government guarantee but puts private capital at the first-loss position.

Sen. Bob Corker (R-Tenn) said he was encouraged by the president's remarks. "There is real momentum growing to finally move a structural housing finance reform bill that ends the Fannie and Freddie model of private gains and public losses, and I look forward to working with my colleagues in the Senate, the House and the White House to see it through," Corker told the Southern Middle Tennessee Association of Realtors at a meeting in Columbia, Tenn.

Don't get too excited, Senator. By the time Congress is finished with your bill, it will look very little like the original.

Many have interpreted Obama's implied support of the bipartisan bill as another sign that the PATH Act, advanced by the House Financial Services Committee, is dead on arrival.

The PATH plan envisages a purely private market absent of any government guarantee, something that, predictably, is stiffly opposed by Democrats. But it has also met some resistance from some conservatives who worry about the impact the overhaul would have on the availability of mortgage credit.

Still, the idea of a government guarantee will be contested by some conservatives.

"A proposal that maintains implied or express government backing will only repeat the same cycle of market distortion, artificially low mortgage interest rates, over-investment and eventually collapse," James Valvo, director of Americans for Prosperity, said in a statement, urging the president to reject the "failed approach."

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