WASHINGTON — While many lawmakers favor reducing the government's role in the mortgage market as much as possible, several important industry players took to Congress on Thursday to fight to maintain its presence.

While acknowledging that the collapse of Fannie Mae and Freddie Mac make it clear the government-sponsored enterprise model was deeply flawed, they said a government withdrawal from the sector could wreck the housing market.

"Pure privatization of the secondary mortgage market is unacceptable," Ron Phipps, the president of the National Association of Realtors, told the Senate Banking Committee. "We caution that significantly limiting the government's role in housing finance will cause mortgage products to be more aligned with business goals than the nation's housing policy or the consumer."

Terri Ludwig, the president and chief executive of Enterprise Community Partners, agreed but said that the industry was not seeking to return Fannie and Freddie to their previous state. "The need for affordable rental housing is acute," Ludwig said. "The government cannot walk away from all government support of this market segment. This does not mean that we support the status quo."

But the challenge of finding that balance — between reducing the government's role while ensuring liquidity won't vanish — has been left in the hands of lawmakers, while the Obama administration has offered several options on how to proceed.

Sen. Richard Shelby, the lead Republican on the panel, raised serious doubts about those who argue for a government guarantee. "We cannot assume a government guarantee of mortgages can be achieved without risk to the taxpayer," Shelby said. "We must ask … whether the reduced role of the private sector is a result of market conditions or conditions created by government policies. Surely we should answer this critical question before we draw any conclusions about the wisdom of continued government involvement in the mortgage market."

Democrats, meanwhile, largely kept their powder dry, avoiding endorsing any specific course of action.

"This committee must explore ways to bring private capital back to the market while also ensuring that credit remains available," said the Banking Committee's chairman, Tim Johnson, D-S.D.

Contrary to Shelby's view, however, witnesses at the hearing said private capital would be unlikely to be drawn back to the market without at least some continued government backing.

Barry Rutenberg, the first vice chairman of the National Association of Home Builders, said it would be "premature" to wind down Fannie and Freddie without a clear view of their replacements.

"While NAHB agrees that private capital must be the dominant source of mortgage credit, the future housing finance system cannot be left entirely to the private sector," Rutenberg said. "The historical track record clearly shows that the private sector is not capable of providing a consistent and adequate supply of housing credit without a government backstop."

Mark Parrell, executive vice president and chief financial officer of Equity Residential, speaking on behalf of the National Multi Housing Council, stressed the need for the government's role in the multifamily mortgage market.

"The private market alone cannot meet the industry's future capital needs," Parrell said. "Even in healthy economic times, the private market has not been able or willing to meet the full capital needs of rental housing."

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