Say goodbye to Fannie Mae and Freddie Mac as we know them. But you can take your time; it will be a long goodbye.

Last week, the Obama administration unveiled its wide-ranging framework for the future of housing finance, proposing three separate and distinct paths forward. In doing so, Treasury Secretary Timothy Geithner acknowledged that, “realistically, this is going to take five to seven years.”

Underlining each of the three proposals is a mandate to wind down the government-sponsored enterprises (GSEs) and replace them with an entirely new system based on private capital. All three proposals feature a reduction in the government’s involvement in housing finance, while still offering some level of government assistance.

The white paper does focus on rental housing in general, acknowledging its rising importance in the wake of the single-family housing meltdown. “As we wind down Fannie Mae and Freddie Mac, it will be critical to find ways to maintain funding for this segment of the market,” the report says.

Unclear Future
Still, there’s no specific plan offered for the future of the GSEs’ multifamily programs. The whitepaper acknowledges that the GSEs have developed a lot of expertise—not to mention a profitable business model—in the apartment market. But the report also raises a gigantic red flag when it suggests expanding the FHA’s capacity to support the multifamily market in the absence of the GSEs.

“In the end, I don’t think shifting much of this to an expanded FHA will prove viable,” says David Abromowitz, a Boston-based partner in law firm Goulston & Storrs and a senior fellow at the Washington, D.C.-based think tank Center for American Progress. “The FHA will continue to play a critical role in apartment financing, but fostering myriad private channels with a limited government insurance backing will be far more what the multifamily industry will likely push for.”

Some in the multifamily industry fear that the baby will get thrown out with the bathwater, so to speak. The concern is that the GSEs' multifamily divisions, and by extension the industry at large, will suffer through no fault of its own. Will the massive losses racked up by the GSEs’ single-family divisions—which comprise about 95 percent of their businesses—hijack the debate, leaving multifamily as an afterthought?

“Quite simply, the GSEs’ multifamily programs are not broken. They have default rates of less than 1 percent, and they actually produce net revenue for the U.S. government,” said Doug Bibby, president of the Washington, D.C.-based National Multi Housing Council (NMHC). “But they—and the nation’s supply of workforce rental housing—stand at risk of becoming a collateral victim of the single-family meltdown.”

Three Paths
The whitepaper is just a starting point, offering lawmakers several options and points of consideration in crafting legislation. By unveiling three diverse proposals, the administration is casting a wide political net. And the reactions from conservative and liberal organizations alike both applaud and lay claim to certain elements of the whitepaper.

The whitepaper's first option limits the government’s guarantee to the FHA, the USDA, and the Department of Veteran’s Affairs for narrowly targeted groups of borrowers. The second proposal goes further, mirroring the first option but including a government guarantee mechanism that could be scaled up to ensure liquidity during times of crisis. The third option lays out a system of mortgage credit guarantor entities—private companies that would guarantee securities, which would then be reinsured by the federal government at a premium. In that third option, the government backstop is always available, not just in times of crisis.

The Mortgage Bankers Association (MBA) cheered the whitepaper, saying that it was gratified to see its own proposal mirrored in the third option. “We continue to believe that this is the most prudent approach, one that places the primary risk on private investors and ensures sufficient liquidity during times of economic stress in order to provide affordable mortgage finance in all types of mortgage markets,” said Michael Berman, chairman of the Washington, D.C.-based MBA, in a statement.

Option three—with its ongoing, limited, but explicit government support—is the most compelling to Abromowitz as well as to the NMHC. “We would encourage lawmakers to focus their attention—at least in terms of serving the rental housing industry—on the third option, which would provide a federal guarantee at all times,” Bibby says. “We have serious doubts about the ability of an ‘emergency-only’ federal guarantee to ramp up quickly enough to adequately respond to a capital issue.”

A fully private model with absolutely no government guarantee is not among the proposals. Still, the conservative think tank American Enterprise Institute—which recommends removing the government entirely from the market—applauded the first option, while arguing it doesn’t go far enough.

“We are delighted to see that the administration has recognized the importance of focusing most of the housing finance in private markets, and adopts the idea of gradually winding down Fannie and Freddie,” said the Washington, D.C.-based AEI in a statement. “Still, the administration could not bring itself to recognize the hazard to the taxpayers that is implicit in any government role in housing finance.”

The National Low Income Housing Coalition (NLIHC) also found something to like in the whitepaper, pointing to the administration’s focus on government support for the housing needs of our nation’s poorest citizens. “By including the housing shortage faced by the lowest income Americans in this report, the Obama administration has focused attention on the fact that the U.S. housing market has not met the needs of all our people,” said Sheila Crowley, president of the Washington, D.C.-based NLIHC, in a statement.

The support offered by organizations as diametrically opposed as AEI and NLIHC underscores just how wide-open the options are. Now comes the hard part—forging consensus in a bitterly divided Congress.