WASHINGTON ( TheStreet) -- A startling whisper has been reverberating around Washington and in the main stream press: That President Obama might slay the beast of Fannie Mae ( FNMA.OB) and Freddie Mac ( FMCC.OB) once and for all.

Such a move would fundamentally change both the way Wall Street operates and the way Americans think about life.

The Obama administration appears to be suggesting -- very subtly -- that homeownership isn't a God-given right. That the American dream has morphed into an American entitlement. That millions of people who should not have been homeowners in the first place ended up paralyzed by unsustainable debt as a result.

And that, finally, to repair the system, the Fannie Mae and Freddie Mac model of subsidized housing should be resigned to the past.

Of course, senior administration officials who have been suggesting such a change aren't the first ones to come up with it. Republicans and scholars have been saying so for quite some time.

Yet, it's important that folks in Obama's camp are starting to come around to the idea -- publicly -- that fewer Americans ought to be homeowners. Ultimately, they will be responsible for the structure of U.S. housing finance going forward -- as well as the direction of trillions of dollars in private money that moves along with it, and the way major money center banks like Bank of America ( BAC), Wells Fargo ( WFC), JPMorgan Chase ( JPM) and Citigroup ( C) operate.

The administration has yet to "officially" outline any plan for the future of Fannie, Freddie and other so-called government-sponsored enterprises like Ginnie Mae and the Federal Home Loan Banks. Yet evidence is piling up about a shift in thinking -- from a model where the government is heavily involved in mortgage finance to one where it's largely absent.

"This crisis reaffirmed the need to achieve a better balance between ownership and rental housing," HUD Secretary Shaun Donovan told lawmakers in the spring.

Another senior HUD official was more direct in an interview with the Washington Post recently: "In previous eras, we haven't seen people question whether homeownership was the right decision. It was just assumed that's where you want to go. You're not going to hear us say that."

That official was Raphael Bostic, a leading scholar on home finance and key policy adviser. An NPR report on Thursday morning said senior officials have acknowledged that their HAMP plan was largely a failure, and were leaning toward policy goals that promoted renting rather than buying. As a result, the report said, Fannie and Freddie might be entirely liquidated.

Big shots like Treasury Secretary Tim Geithner, Sen. Chris Dodd (D., Conn.), Rep. Barney Frank (D., Mass.) and even the president himself have remained conspicuously silent on Fannie-Freddie reform. But it's possible that the administration is using lower-profile officials like Bostic and Donovan to float ideas in the press and get a read on what type of plan would be politically viable.

"The politics has always been as important as the economics," says Christie Sciacca, a former FDIC official who now works with financial firms at the consultancy LECG. "I do think that a healthy debate should and will occur."

Vilifying "fat cat bankers" at Goldman Sachs ( GS) naturally had political legs, but voters don't seem to have much of a sense of what Fannie and Freddie actually do. Nor do they seem to be aware of the scale of their bailout, which is now larger and less likely to be paid back than any other.
Fannie Mae and Freddie Mac vs. Big Banks

Lawmakers have a better idea of how important Fannie and Freddie are. They tend to have strong opinions on the matter, even if it doesn't resonate with the public very well.

Liberal Democrats like Dodd and Frank have long been champions of Fannie and Freddie, pushing them deeper into subprime to achieve affordable-housing goals. Conservative Republicans are at the opposite end of the spectrum, seeing GSEs as a long-running bailout for financial firms, a long-running welfare system for those who can't afford to own and a long-running moral hazard for the financial system.

As one negotiator in the financial-reform battle puts it: "They were clearly mismanaged, their CEOs were making something like $30 million a year and they were basically running themselves like a Wall Street bank with taxpayer dollars."

Obama's team hasn't suggested much of anything regarding Fannie and Freddie other than offering six vague concepts in a white paper in June 2009. Surprisingly, top Democratic lawmakers have also been tight-lipped, while Republicans seized on the issue as a glaring omission from the Dodd-Frank bill. Joining the Republicans in this view are top bankers and Wall Street figures who feel unfairly targeted by measures that make little economic sense, even if they have popular support.

"There is nothing in there, not one word about the GSEs, Fannie and Freddie," Wells Fargo CEO John Stumpf said during a conference call on Wednesday. "You could ask any American and they would say, ' If housing was not the epicenter of what happened it was very close to it.' And who are the two biggest players there? Fannie and Freddie."

Because of the jagged partisan divide, and heavy pushback from industry lobbyists, finreg was tough to get through Congress even without the GSEs. Top Republicans came up with a proposal to liquidate Fannie and Freddie over a period of 10 years. But it didn't stand a chance in the Dodd-Frank reform bill which President Obama signed into law this week.

"I would be very surprised if that happened after seeing everything that went on on the Hill," says Heath Tarbert, who headed the Financial Regulatory Reform Working Group at the law firm Weil Gotshal.

Tarbert is probably correct. Swinging the pendulum in such a dramatic fashion threatens to waste political capital at a time when the Obama camp needs all the support it can muster.

Furthermore, Fannie Mae and Freddie Mac are a crucial part of the administration's financial-stability programs. Any suggestion of a sudden change to their platforms could disrupt everything from the stock and bond markets to the small signs of life in lending.

Another top banking lawyer points out that Fannie and Freddie have such a tremendous role -- from their dominance of mortgage securitization, to their impact on rates, to their basic technological platforms and relationships with buyers and sellers -- that it would be difficult and costly to do away with them entirely, even if makes sense philosophically.

"While it might be good public policy to move in the direction of the rumors, I do not see how it is possible any time soon in view of the condition of the housing sector and the economy generally," says William Isaac, a former FDIC chairman who heads the financial services practice at the consultancy LECG.

Isaac believes the Obama administration would never relinquish subsidized housing policies and, in fact, probably has objectives in the opposite direction. Isaac's recently published book, "Senseless Panic: How Washington Failed America," has a foreword from top Obama adviser Paul Volcker, who has a rule named after him in the reform bill, so his instinct carries weight.

Still, the Obama team has been fairly pragmatic in approaching reform. They have often placed what they consider to be the "right" policy objectives over what is popular among power brokers, and therefore easier to pass.

Treasury Secretary Tim Geithner has pledged that the government will remain involved in housing finance and to outline a specific plan for Fannie and Freddie in early 2011. His deputy, Neal Wolin said last week that while GSEs hadn't been addressed yet, the administration was "very focused" on the topic now that the finreg battle has been won.

Apart from that, the most significant things to happen to Fannie and Freddie since their bailout nearly two years ago are: They've been granted unlimited taxpayer support; they've been delisted from the New York Stock Exchange; and they've helped send mortgage rates down to a new, rock-bottom level of 4.56%.

In the absence of government leadership, industry groups have come up with comprehensive proposals, as have a couple of conservative think tanks. The financial industry acknowledges that GSEs' hybrid model is flawed, but the most meaningful change they suggest is to make the government guarantee explicit rather than implied.

"We encourage policymakers to fix what's broken without dismantling the aspects that have provided efficient, cost effective lending and benefits to our economy for the last 30 years," Tim Ryan, president of SIFMA, the securitization industry's main trade group, said on Thursday.

Conservatives want Fannie and Freddie abolished altogether, with private capital to replace the government's role.

The most sensible and politically palpable option may be something in between -- explicit guarantees with more strings attached, fewer incentives for Americans to buy homes, and more incentives for them to rent if they can't pay down hundreds of thousands of dollars over a 30-year time frame.

Ernest Patrikis, a former Fed official and partner at White & Case who deals with financial-regulatory issues, says the private sector will deal with whatever comes down the pike. The main difference will be how expensive and how available mortgages are on Main Street, and how much profit Wall Street can earn from them.

"It's the basic question: Do we really need a Freddie and Fannie?" says Patrikis."I don't know if anyone knows the right answer."

But when Patrikis was a counsel at the New York Federal Reserve in the 1980s and 1990s, his team was approached by an official from the U.K. government. England's financial leaders were examining whether it would be wise to implement a system similar to Fannie and Freddie across the pond.

"Our first response was, 'Don't do it,'" he says.

U.S. Mortgage Crisis

Mortgage Mayhem
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-- Written by Lauren Tara LaCapra in New York.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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