Proposals in Congress to change the structure of the government-sponsored enterprises Fannie Mae and Freddie Mac seem to be languishing in this election year. But behind the scenes, both agencies are making significant changes to their structure and operations using current legal authority. These changes will alter the face of housing finance. As my colleagues and I at Kroll Bond Rating Agency wrote in a research note last month:

KBRA does not believe that there is any likelihood of housing reform legislation passing Congress before the 2016 general election at the earliest. Accordingly, we believe that investors and financial institutions need to operate under the assumption that current law and regulation will remain in place for years to come.

One reason that the efforts in Washington to reform the U.S. housing sector have made scant progress is that there is little consensus as to what goals reform is intended to achieve. Fannie Mae and Freddie Mac are currently being managed under a conservatorship imposed by the Federal Housing Finance Authority more than five years ago, but both agencies continue to function and perform their role as guarantors for residential mortgages.

Under the terms of the 2008 rescue, moreover, Treasury is essentially taking all of the net income generated by both GSEs, an arrangement that does very little to pressure the administration or Congress to change the status quo. This arrangement is appropriate because, in fact, the U.S. taxpayer is still providing the financial support for both GSEs.

In our view, one of the more unrealistic proposals relating to "GSE reform" is the idea that Fannie Mae and Freddie Mac can be privatized. Some Wall Street investment houses argue that the GSEs should be returned to "private ownership" as was supposedly the case prior to 2008, but such arguments miss some important facts.

First and foremost, Fannie Mae and Freddie Mac require at least the implicit if not explicit backing of the U.S. Treasury in order to operate. The low cost of funds available for Fannie Mae and Freddie Mac stems from the fact that global investors believe the securities issued by the GSEs have the full faith and credit of the U.S. behind them. Were anything to change that perception, the GSEs would cease to exist as we know them and the cost of mortgage financing would increase dramatically.

We should keep in mind that when the Federal Reserve purchased agency mortgage securities as part of "quantitative easing," it did so because this paper is seen as having the full faith and credit of the government behind it. The Fed did not buy corporate bonds and other private assets, but it did purchase agency debt because this paper has the full backing of the U.S. Treasury.

How is it possible that hedge funds and their Washington lobbyists could suggest that we repeat the "private ownership with taxpayers guarantee" model that led to the collapse of the GSEs in 2008? We believe the private market has an important role to play in mortgage financing, including such arrangements as GSE risk-sharing securitizations. However we view the idea that private investors will provide sufficient capital to give the GSEs a credit rating approaching the current AAA status to be highly dubious. Yet this is precisely the argument that is being made by some observers.

If we look at the market for private mortgage insurance, raising enough capital to back the trillions of dollars' worth of mortgage exposure now supported by the GSEs would require something on the order of 8% to 10% total capital to cover expected and unanticipated losses. Even then, with hundreds of billions of dollars in equity, it is unclear whether the GSEs or a replacement could ever achieve the same degree of investor confidence and cost of funds they enjoy today.

So when would-be reformers ask the question, "how much capital does a GSE need?" the simple answer is none. So long as Fannie Mae and Freddie Mac are backed by the full faith and credit of the U.S. Treasury, they don't need to accumulate any capital save the liquidity necessary to fund their operations. Before advocates of GSE reform head down the road to restructuring or replacing Fannie Mae and Freddie Mac, they first need to come to grips with the basic reality that, one way or another, the U.S. government currently underwrites most of the U.S. mortgage market.

Christopher Whalen is senior managing director and head of research at Kroll Bond Rating Agency in New York.