Henry Cisneros has a distinct perspective on the intersection of politics and housing.

The former HUD Secretary under President Clinton was a key architect in reforming the nation’s public housing system, implementing the HOPE VI program, one of the nation’s most successful urban revitalization initiatives. By the end of his term, HUD had renovated 250 of the nation’s worst public housing projects.

He also served during a time when powerful forces, including the President, were mulling a privatization of the Federal Housing Administration, while other Congressional leaders called for HUD’s elimination. Cisneros consistently beat back those efforts, presenting a plan to trim the department’s budget by $13 billion over five years.

With the housing finance reform debate continuing in the halls of Congress, Apartment Finance Today senior editor Jerry Ascierto sat down with Cisneros to get his take on the highly contentious issue of the government's role in the future of the GSEs.

AFT: What’s your view on the housing finance reform debate and the future of Fannie Mae and Freddie Mac?
Cisneros: Fannie and Freddie are very important to the nation’s housing finance system. Certainly the function of securitization is important and though the mechanics of securitization can be done by the private sector, we know there is a public sector dimension. First, the 30-year mortgage is a backbone of our housing finance system, and difficult to do in the private sector. Second is the need to be in existence and strong through the housing cycle, stabilizing in more difficult times, which again the private sector would have difficulty doing alone. And third, it’s important that we continue to work at moderately priced and affordable housing. Fannie and Freddie and their moderate and affordable goals are important, and I sincerely believe were not the reason for the housing meltdown. People have wanted to blame Fannie, Freddie, and those goals to deflect attention from the real source of the problem, which was the special investment vehicles and the CDOs and the tranches of toxic mortgages being packaged and sold internationally, with artificially inflated ratings.

AFT: It sounds like of the Obama Administration's three proposals, you favor the third option, the always-on government guarantee?
Cisneros: Absolutely, and what we have to do is restrain Fannie and Freddie, and that may mean they lose their present identity, but the function of securitization I believe needs to be sustained with a governmental role.

AFT: What do you imagine will be the end result? What seems like the most likely outcome?
Cisneros: I see an end result that incorporates the core of the system that exists today. I don’t think we’ll recognize the names Fannie and Freddie, or the corporate structure they have today—the hybrid New York Stock Exchange/private mechanism—but I think that a governmental role in the core functions will exist. Still, we’ll not see anything definitive until after the election at this point. And as much as we’d like to see action and clarity soon, I’d rather see the correct result, rather than rush. The longer that we go and understand what happened in this downturn, the more likely we are to end up with the right structure. Because acting in the heat of anger could bring us out at the wrong place. When wiser heads prevail and we get back to a period of cooler analysis, I don’t think that we want to throw the baby out with the bathwater.

AFT: Isn’t there a concern that the longer you wait, the harder it will be for Fannie and Freddie to retain staff and function well?
Cisneros: That may be an issue, but I don’t think people are leaving in droves right now. I think the downside to waiting is that we have this uncertainty in the market. And that, added to the other pressures on the housing markets, like the fact that interest rates are probably going to be rising steadily in the next year; the fact that we’re not making as much headway on the foreclosure issue as we ought to; the fact that jobs are not coming back as strongly as they should. You add all that together and housing is a major retardant, if you will, in the recovery. This is one of those vicious circles, a chicken or egg problem. Can you bring the economy back without housing, and can housing come back without the larger recovery?

AFT: When you were HUD secretary, President Clinton floated the idea that the FHA could be spun off as a government-owned corporation, and some influential voices have raised that idea again. You weren’t a fan of that idea in the ‘90s: What do you think of it now?
Cisneros: I would not privatize FHA. I think that in a moderate economy, the ideal outcome is limited, structured, but responsible roles for the public and the private sector. That is to say, there is a legitimate public role to be played that I don’t think we could sacrifice.

AFT: Tell me what opportunities you're pursuing at CityView, the investment company you founded in 2000.
Cisneros: First, it’s very clear that we need more affordable and workforce housing, and that’s only going to become more acute. We’ve had such a mismatch between what was being produced and what is needed. Going forward, we’ll need less suburban McMansions and more smaller scale, transit-related, closer-in to job centers, workforce- and affordable-priced housing of various types. So at CityView, the bulk of what we do, 87 percent of all the units we’ve built, are in the middle band of workforce priced. The American economy has moved in a direction where cities have become more critical. Our new industries, such as professional services, international trade, new media, medical care, higher education—these are all metro-based. So we need to be providing housing that serves those needs. You could make a very clear argument that there are major opportunities ahead of us.