The housing finance reform debate seems to have been placed on the backburner on Capitol Hill, overshadowed by the debt ceiling drama, the wars in Iraq and Afghanistan, the posturing in light of next year's election, and the Dodd-Frank rollout.

There are currently more than 20 bills floating around the House of Representatives that, in some way, address Fannie Mae, Freddie Mac, and housing finance reform in general. Yet only one of those bills, the Covered Bond Act of 2011, has made it out of the House Financial Services Committee. And only a few bills, such as the bipartisan Housing Finance Reform Act of 2011, introduced by Rep. John Campbell (R-Calif.) and Rep. Gary Peters (D-Mich.), offer a comprehensive solution.

“You’ve got a lot of action and activity, but nothing really happening,” says Doug Bibby, president of the Washington, D.C.-based National Multi Housing Council. “My prediction is that nothing legislatively is going to happen until after the 2012 election.”

The Campbell-Peters bill mirrors the Obama administration’s third option of creating privately capitalized, chartered organizations that would access a government guarantee for mortgage-backed securities. But centrist, bipartisan bills have little chance of advancing in today’s House Finance Services Committee, where the power lies more with small-government Republicans who advocate simply shutting down the government-sponsored enterprises (GSEs).

The piecemeal legislative attempt emanating from Rep. Scott Garrett’s (R-N.J.) Subcommittee on Capital Markets and Government-Sponsored Enterprises “is death by a thousand cuts,” says Michael Berman, chairman of the Washington, D.C.-based Mortgage Bankers Association. “They’re basically trying to rein in Fannie and Freddie and make sure they get smaller faster, and eliminate them as quickly as possible. What they fail to envision is what would replace that.”

Glide Path
In some ways, the current inaction could benefit the GSEs. Every month that goes by without a decision buys Fannie and Freddie more time to re-gain profitability and begin paying back the government. Should the GSEs begin to turn a profit late next year or in 2013, as many predict, the additional dollars could bolster the case for them to be set on a “glide path” off of the government’s dole and into a more certain future.

“A year ago, the likelihood of that was very small. But since January, I’ve heard a number of people in Washington discussing that,” Berman says. “If nothing happens politically until after the 2012 elections, and Fannie and Freddie are turning a profit by then, maybe it changes the whole dynamic.”

In essence, the GSEs could follow the paths of AIG and GM—high-profile government bailouts that are marching toward reclaiming their former status. The government could sell off the GSEs’ stock, create a new regulatory framework and capitalization requirements, and spin them out.

“AIG got $180 billion, and now there’s a possibility that the government can sell that off and pay most of itself back. And the government might even make a profit off of GM,” Bibby says. “The best thing Fannie and Freddie could do is return to profitability, start paying the government back, and then we’ll see what happens.”

Stay Tuned
Still, it’s hard to believe, after all the posturing and drama of the past few years, that the GSEs will just be modified and slip quietly into the future.

There were whispers on Capitol Hill in late July that Rep. Spencer Bachus (R-Ala.), chair of the House Financial Services Committee, had begun working with the Treasury Department and HUD on a comprehensive proposal. In an op-ed on the Dodd-Frank bill in the Wall Street Journal on July 20, Treasury Sec. Tim Geithner cryptically wrote, “We have started the process of winding down Fannie Mae and Freddie Mac and reforming the overall mortgage market,” without elaborating.

If true, the development signals a greater level of cooperation between the administration and the House Financial Services Committee on GSE reform. Yet, given the acrimony in Congress, and some of the big-ticket legislative issues yet to be resolved, it’s safe to say that the GSEs will continue to operate in limbo for the foreseeable future.

And for those hoping to minimize disruption, who don’t think the baby should be thrown out with the bathwater, today’s inaction may be the GSEs' best hope yet.