By Corbett B. Daly

WASHINGTON (Reuters) - An Obama administration
summit of housing industry leaders next week may yield clues on
the future of Fannie Mae and Freddie Mac,
the two mortgage heavyweights that so far have sucked up close
to $150 billion in taxpayer bailout funds.

The administration has vowed to produce a plan by January
to change the role the two government-controlled firms play in
supporting the housing market. The conference on Tuesday is
aimed at soliciting views from top industry officials on how to
the companies should be restructured.

The Bush administration seized Fannie Mae and Freddie Mac
in September 2008 as the financial crisis was reaching fever
pitch. The two companies were heavily saddled with mortgage
losses after the implosion of the U.S. housing market.

A consensus has since emerged that their former status as
shareholder-owned but congressionally chartered entities, which
fostered a belief in financial markets that the government
would not let them fail, should not be resurrected.

Still, the debate over how much support the government
should provide to foster homeownership is likely to prove messy
given the diversity of views along the political spectrum. Any
decision on what to do could take years to resolve.

Treasury Secretary Timothy Geithner has said there is a
"good case" for the government to continue playing a role in
housing finance. But he and other administration officials have
been careful not to say what form that might take and how much
support is needed.

Michael Barr, the Treasury Department's assistant secretary
for financial institutions, said Tuesday the implicit
guarantees of the past are not going to return.

"If we decide we want to subsidize the housing sector we
are going to need to decide to do that explicitly, and people
are going to have to pay for it. I think that would be a
fundamental change," Barr said.

The administration has used the two companies and the
Federal Housing Administration as key props to support housing
and the economy.

Indeed, markets have been rife with speculation the
administration would force them to write down loans for
struggling homeowners who owe more than their house is worth.
The administration, however, has said no policy shift is on the
way.

DEBATING THE OPTIONS

The public discussion with industry leaders, including
Wells Fargo Home Mortgage Co-President Michael Heid,
Bank of America Home Loans President Barbara Desoer and
Moody's Economy.com chief economist Mark Zandi, will provide an
opportunity for the administration to flesh out its thinking,
although the topic is so sensitive officials are likely to pull
back the veil only slightly.

Bill Gross, co-founder of bond-trading firm Pacific
Investment Management Co, and Lewis Ranieri, the former Salomon
Brothers trader who developed the model for the private
mortgage-backed securities market that was behind a rapid
expansion of credit for U.S. homeowners, are also on the list
of panelists.

The two companies theoretically could be turned into wholly
owned government agencies that buy and hold pools of MBS, which
would return to the original, post-Depression model for Fannie
Mae.

But analysts say such a move is highly unlikely because it
would dramatically increase the government's role and make a
dire U.S. budget deficit situation even worse.

Many Republicans, who have blasted the administration for
not tackling Fannie Mae and Freddie Mac in a sweeping overhaul
of financial regulation, want to fully privatize the firms.
That also seems unlikely as government support for housing is
seen by many as akin to a birthright.

That leaves some sort of "convoluted" solution as the
likely end game, according to Dean Baker, co-director of the
left-leaning Center for Economic and Policy Research.

"That's what the banks want," Baker said.

The Mortgage Bankers Association has proposed a system in
which risk-based fees on a class of mortgage-backed securities
would be charged in exchange for an explicit government
guarantee ensuring investors do not suffer losses.

Taking place less than three months before lawmakers face
voters upset at funding bailouts, the conference provides an
opportunity for the administration to rebut charges of
inaction, as the sweeping Wall Street overhaul did not include
Fannie Mae and Freddie Mac.

Republicans hope to capture that voter anger and paint
incumbent Democrats as responsible for the hundreds of billions
of taxpayer dollars received by Fannie Mae and Freddie Mac.

The Obama administration and Democrats on Capitol Hill
contend that moving too soon with a housing finance revamp
could have undercut a fragile recovery.

On Tuesday, the Federal Reserve said it was downgrading its
U.S. economic outlook and pledged to provide additional support
for the recovery.

Most of the large Wall Street banks have paid back the
their bailout money and auto companies could be on track to do
the same. But Fannie Mae and Freddie Mac are not expected to
ever repay their taxpayer funds.
(Additional reporting by Al Yoon in New York; Editing by Neil
Stempleman)