There would be no housing market today without the government.
Over the past 18 months, Washington has taken extraordinary steps to keep home loans available and affordable. That caused a tentative housing recovery last year. Home sales reversed their four-year descent, while prices stabilized.
One big reason: The government seized control of Fannie Mae and Freddie Mac, massive companies that purchase home loans, package them into investments and guarantee them against default. The price tag has been huge—$126 billion and growing.
Now comes the hard part: figuring out what to do next.
"They have a separate regulator and they are a structural problem that is very large and very difficult to deal with separately," Paul Kanjorski, chairman of the Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, told CNBC.
With the Obama administration largely mute on the issue, Congress will hold its first hearing Tuesday about how to restructure the mortgage system in the wake of the financial crisis.
Kanjorski said he was favoring some smaller Fannies and Freddies, with some government connection, so if they fail they will not bring the system down with them.
"Don’t make the American taxpayer responsible for handling speculative situations or bubbles," he said.
Rep. Spencher Bachus, ranking Republican on the committee, said in a subsequent CNBC interview that he would prefer government exit the industry entirely.
"We need to phase it out over time," he said. "America is about competition and innovation. The federal model simply is not the efficient model."
Working out a new system is likely to take years. For the time being, the market is still resting on three government pillars: Fannie, Freddie and the Federal Housing Administration.
There has been plenty of talk in recent months about how to scale back reliance on those behemoths, which own or guarantee half of all mortgages.
Fannie and Freddie were effectively nationalized by regulators in September 2008, and their role in the marketplace has only grown since. Last year, they backed about 70 percent of all home loans, according to Inside Mortgage Finance, a trade publication. The duo also manage the Obama administration's $75 billion loan modification program.
But the housing recovery remains too fragile and feeble for the government to step away. Even staunch free-market advocates who want to get rid of Fannie and Freddie in the long run don't see that happening anytime soon.
"The first priority is we have to keep financing homes, and we don't have a way to do that without Fannie and Freddie," said Peter Wallison, a senior fellow at the conservative American Enterprise Institute. "We have to deal with the realities of where we are today."
Since the government took over Fannie and Freddie, Obama officials have given few details on their long-term thinking, apart from saying that they want to delay a legislative proposal until next year. In the meantime, officials plan to seek public comment on a list of questions to be published next month.
"The housing finance system clearly cannot continue to operate as it has in the past," said Treasury Secretary Timothy Geithner in testimony prepared for Tuesday's hearing held by the House Financial Services Committee.
He added that any restructuring should wait until "a time of greater market stability."
The administration is "loath to talk about drastic reform to the system until there's more evidence that the housing markets are not going to experience a severe double-dip," said David Min, associate director for financial markets policy at the Center for American Progress, a liberal think tank. "If you talk about drastic changes, you'll spook investors."
On Capitol Hill, however, Republicans are impatient. They argue that the government's push to expand homeownership through Fannie and Freddie was the main cause of the financial crisis. They are proposing to phase out Fannie and Freddie within four years.
"Something has to be done sooner rather than later, while there is some political will," said Rep. Scott Garrett, R.-N.J.
If lawmakers wait too long to tackle Fannie and Freddie, he said, "we will have forgotten the problems that they caused."
But powerful interests don't want to rock the boat too hard. The National Association of Realtors is pushing to preserve Fannie and Freddie, but as nonprofit government authorities without private shareholders.
"The disruption in the marketplace by doing something too radical would be harmful" to the housing market and the economy, said Vince Malta, a San Francisco Realtor who is testifying at Tuesday's hearing.
And those who want to eliminate Fannie and Freddie face another hurdle—investors are still nervous. They don't want to buy mortgage securities that don't carry a government guarantee —whether explicitly in the case of FHA or implicitly in the case of Fannie and Freddie.
In a recent speech, David Stevens, the FHA's commissioner, recalled meeting a group of international bankers who "peppered me with questions—very difficult questions" about what the U.S. government was doing to bring back their trust.
They all have been burned, he noted, after buying mortgage securities with triple-A ratings that turned out to be junk.
"We are at the point right now," Stevens said, "where no one trusts the American housing finance system."