NEW YORK ( TheStreet) -- The most startling element of a panel discussion about the future of government-sponsored enterprises Fannie Mae ( FNMAS.OB) and FMCC.OB ( FRE) on Tuesday was the utter lack of direction from Washington on what to expect. As a result, there wasn't much to discuss besides hypotheticals to the degree that one representative of a large buyer of Fannie/Freddie securities sounded as though his preference was irrelevant. "I don't know what the answer is to GSE reform; what's your policy objective?" asked Jay Diamond, managing director of Annaly Capital Management ( NLY) at the panel discussion organized by SIFMA, the securitization industry's main trade group. Diamond later added: "The market will adapt to any change." Annaly Capital is a mortgage REIT that holds roughly $70 billion in mortgage-backed securities. Diamond appeared to be the most frank about potential outcomes: If government doesn't stay heavily involved, rates will go much higher; if the government exits housing finance entirely, there may not be buyers for mortgage securities and credit may dry up entirely; if the government remains heavily involved in the mortgage market as the explicit, primary buyer and guarantor, there's moral hazard and the whole can of worms that comes with it. Phew. In any case, one can tell how momentous the task ahead of the government is and how serious its decisions may be. Another panelist, Mahesh Swaminathan, who oversees Credit Suisse's ( CS) strategies for investing in residential mortgage-backed securities, predicted that $3.5 trillion to $4.5 trillion in financing would "disappear" if the government rescinded its support, either implicitly or explicitly.
So many issues came up in a short discussion that it was hard to decide what were the most important. Do traditional, 30-year fixed mortgages make sense when few homeowners today are looking to keep one home for that long and interest rates change so dramatically in a much shorter period of time? Can the U.S. handle a serious overhaul of housing finance -- whether covered bonds, complete privatization or a mortgage-welfare-state of sorts? If not, will we just go through the same thing all over again? These are all questions that the Obama administration and key lawmakers like Barney Frank (D., Mass.) have surely been asking themselves. Republican lawmakers have stood out front on the Fannie-Freddie issue -- which is arguably a good thing for all those involved -- but it's not clear whether the issue yet resonates with average consumers.