Treasury Secretary Henry Paulson said Congress should view the next few months as a "time out" in the highly charged debate over what to do with mortgage giants Fannie Mae and Freddie Mac.
But lawmakers already are sketching plans for what the two troubled government-sponsored companies should look like in the future -- from taking them private, to nationalizing them or turning them into a public utility, to letting them continue to operate as private entities with government backing.
It's up to a new president and a new Congress to decide what happens next.
Republican presidential nominee John McCain's campaign says Fannie (FNM) and Freddie (FRE) should be smaller, while Democratic nominee Barack Obama said their private and public roles have to be clarified.
The Bush administration announced Sunday it was seizing the two huge mortgage companies, which together own or guarantee about $5 trillion in home loans, about half the nation's total, in a bid to help reverse a prolonged housing and credit crisis. They're being placed in a government conservatorship, a move that could end up costing taxpayers billions of dollars.
Paulson has acknowledges there's no way Congress can decide what to do with Fannie Mae and Freddie Mac before the end of the year, but he also said policy makers would make "a grave error if we don't use this time out to permanently address the structural issues" they pose.
Rep. Barney Frank, D-Mass., the House Financial Services Committee chairman, and Sen. Chris Dodd, the Senate Banking Committee chairman, are both planning hearings next week on the specifics of the government takeover.
Longtime critics of the companies want to privatize them.
Sen. Richard C. Shelby of Alabama, the senior Banking Committee Republican, said they should be downsized and spun off into entirely private companies. That would free them of their public mission of helping lower-income people get mortgages and creating affordable-housing opportunities.
"I know that Fannie and Freddie have done some good things ... but they also have made a lot of money, and, ultimately, it's going to be us -- the taxpayers -- underwriting most of that," Shelby said. "We've got to wake up to reality here, and the government can't do everything -- it shouldn't do everything."
Shelby likened his proposal to the railroad reorganization of the 1970s, when several troubled carriers were folded into one national rail corporation, Conrail, which was privatized a decade later.
Another option would be for Congress to turn the companies into a government-regulated utility. That could in essence create a monopoly for mortgage finance, with government control over shareholder returns and home loan rates. As in the case of other utilities like water and power, the goal would be to make sure the product in question -- in this case, mortgage credit -- was widely available at reasonable rates.
"I don't carry any brief for Fannie and Freddie. I carry a brief for the idea that there be an institution around that can provide the kind of liquidity that the mortgage market requires," Dodd said.
Dodd didn't address the idea of a mortgage finance utility, but he said the notion that the private sector could play that role "is basically wishful thinking." He indicated he would fight to preserve some sort of institution that promotes homeownership and affordable mortgage credit, "whether it's them or some other replacement entity."
"I'm skeptical that we'll be able to go totally privatized. I think we will have to maintain some kind of public role," Frank said.
But he said any concrete discussion of what to do with the companies would have to wait until next year.
Congress also could move to nationalize the companies altogether, creating a government agency that provides mortgage credit.
Fannie Mae and Freddie Mac, which are private companies that were chartered by Congress, serve a vital role of providing cash flow to mortgage markets by buying up loans from banks. Their pseudo-governmental status confers lucrative benefits, exempting them from some taxes, letting them hold less capital than required of banks, and -- most significantly -- allowing them to borrow at rates much cheaper than other companies because investors believe that the government will never let them falter.
The companies' very existence is anathema to many Republicans, who espouse free-market principles and argue that Fannie and Freddie, which have enjoyed huge financial success and have legendary political clout, are essentially government-subsidized. Democrats, on the other hand, are strong allies of the companies, in large part because of their public mission.
Dodd said he was concerned that Paulson's latest action was an "ideological thrust" to essentially kill Fannie and Freddie and eliminate their public role.
"There have been people here who wanted to get rid of them for years. ... Is that what's going on here?" Dodd said during a conference call with reporters. "If it is, you've just dealt a very severe blow to the residential mortgage market and homeownership."
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