NEW ORLEANS — With Republicans regaining control of the U.S. House of Representatives — and leadership of key committees like Financial Services — the debate over the future of Fannie Mae and Freddie Mac is likely to move to the right, with those who advocate privatizing the companies having a greater say.

Expanding the debate over Fannie and Freddie’s future is likely to push back any legislation restructuring the mortgage guarantors’ current role to 2012 or beyond, federal policy specialists with the National Association of Realtors told members attending the group’s annual conference today in New Orleans.

The shift to the right could also mean a push for further tightening of FHA lending standards, while concerns about mounting deficit spending could threaten tax subsidies for homeowners such as the mortgage interest deduction and capital gains tax cuts enacted by President George W. Bush.

Legislative gridlock in Congress could also complicate efforts to reach a more than temporary solution to reinstating the National Flood Insurance Program, which ran up a $20 billion deficit in the aftermath of Hurricanes Katrina and Rita.

"We’ll have to separate what people said before Tuesday, and what they (do when they) get to Congress," said Jerry Giovaniello, NAR’s chief lobbyist, of the prospects of Democrats and Republicans forging compromises on pressing issues. "On GSE reform, we’ve been meeting with members since January … members of both parties are saying the old model is dead."

President Obama has committed to putting forward a plan for restructuring Fannie and Freddie and the mortgage markets in general by the end of January.

Giovaniello said NAR has had to educate lawmakers on the importance of the secondary mortgage market, where loans are pooled into securities that are sold to investors. Advocates say the guarantees Fannie and Freddie provide to investors in mortgage-backed securities (MBS) helps channel trillions of dollars into mortgage lending.

Ginnie Mae plays much the same role for loans that are insured by the Federal Housing Administration, and FHA has taken losses during the downturn that have depleted its reserves.

Although NAR has opposed some recent changes in FHA underwriting standards that are intended to limit losses and stave off the need for a taxpayer bailout, "We support very tough FHA reform," Giovaniello said.

When it comes to Fannie Mae and Freddie Mac, NAR advocates converting the companies into government-chartered, non-shareholder-owned authorities that would continue to do what they do today: purchase and guarantee mortgages.

By regulating their products and investments more tightly, Fannie and Freddie would not be vulnerable to the massive losses that led the government to place them in conservatorship in September 2008, NAR maintains.

NAR’s position is that the public-private hybrid model that Fannie and Freddie operated under for many years — characterized by former Federal Reserve Chairman Paul Volker and others as a system that privatized profits while putting losses on the backs of taxpayers — must end.

But the government must continue to play a role in secondary mortgage markets, or home loans will become unavailable or carry exorbitant interest rates when financial markets are under strain, NAR Chief Economist Lawrence Yun argued in a panel discussion with Thomas Hoenig, president of the Kansas City Federal Reserve Bank.

Hoenig said he would not object to the government establishing public entities focused only on securitizing conventional mortgages with strong underwriting standards, but that those entities should only hold onto loans long enough for them to be securitized.

That would make the government a "conduit only, facilitating the flow of capital but not providing the implicit guarantees on funding and assets held that contributed to this crisis," Hoenig said.

An even better option, in Hoenig’s view, would be to leave the securitization of mortgages entirely up to private entities — the way the jumbo mortgage market works. If lawmakers wanted to "provide some favor to housing," it could provide a federal guarantee on some mortgage-backed securities that met strict conforming loan standards — but only for special purposes.

Hoenig questioned the effectiveness of Fannie Mae, Freddie Mac, and other "special privileges" the current housing finance system provides, such as the mortgage interest tax deduction, in boosting homeownership rates. He noted that in a recent study, the U.S. ranked 17th out of 26 economically advanced countries in homeownership rate.

"I am not suggesting we do away with all support for housing," Hoenig said. "I am saying it is time for a change."

Yun said doing away with the mortgage interest rate deduction for homeowners would result in a "15 percent hit to home values" and "massive wealth destruction for property owners."

"You can’t blame the crash for something that’s been in place for a long, long time," he said of the deduction. The biggest driver of the deficit is entitlement programs like Social Security, Yun said.

FHA, too, has been in place for 80 years, and has always been self-sustaining via insurance premiums paid by borrowers, at no cost to taxpayers.

Yun and Hoenig agreed that the threat of inflation is real, driven by growing government spending that’s not been matched by a corresponding increase in revenue.

Hoenig said that the national debt is currently equal to 90 percent of the nation’s entire gross domestic product (GDP) — a level "most people" would say is not sustainable.

Yun said that while he doesn’t expect inflation to be a near-term threat — he’s forecasting that GDP will grow at a slower-than-average 2 to 2.5 percent in the next two years, and that mortgage rates will stay under 6 percent through 2012.

But there does appear to be inflationary pressure building, he said, "and if that happens, mortgage rates will be 8, 9 or 10 percent if inflation is out of control," no matter what the Federal Reserve does.

Inflation, he said, is like a loose tooth — it’s hard to put back once it’s out.

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