Alyssa Katz

It's not every day that a successful investor takes the national stage to suggest that he should lose billions of dollars for the greater good. But that's what Bill Gross of the bond giant PIMCO did last week at the Treasury and HUD conference on the future of the housing finance system.

Gross unleashed a bold proposal to turn Fannie and Freddie back into one big government agency, which is what they had been until the 1970s. In the meantime, Gross added, they should "quickly re-engineer a refinancing opportunity for all mortgagees that are current on payments" and are part of Fannie or Freddie investment pools.

Gross described this plan as a stimulus program that wouldn't add to the deficit. It would clearly help consumers, by lowering their monthly payments or even reducing principal. Investors in Fannie and Freddie securities, though – including PIMCO and its clients – could stand to take a big financial hit. As Gross told the Huffington Post's Shahien Nasiripour, "I'm here as a public advocate, not as a private [investor]."

The big takeaway from today's "Future of Housing Finance" conference at the U.S. Department of Treasury was that everybody agreed to agree – more or less. It was a given that Fannie Mae and Freddie Mac will be put into retirement, eventually.

As Treasury Secretary Timothy Geithner said in his introductory remarks, "This administration will side with those who want fundamental change."

The future is here, and not a moment too soon. Tomorrow, Treasury Secretary Timothy Geithner and HUD Secretary Shaun Donovan, pictured left, will host a conference on the future of housing finance. Before you click away or fall asleep -- pay attention. What's at stake is nothing less than whether or not you -- or the buyer to whom you'll sell your house to one day -- will be able to get an affordable, long-term mortgage, no matter what the state of the economy.

Fannie Mae has been guaranteeing this since 1938, Freddie Mac since 1970. Their original mission was to level out the ups and downs of mortgage lending by creating giant pools of money for home loans that banks could dip into whenever they needed it, whether those banks were flush with deposits or had hit a dry spell.

Of course, the Fannie and Freddie story has had a much-less-tidy ending, as deregulation led private competitors to undercut them with subprime lending – and Fannie and Freddie made a fatally bad decision: "If you can't beat 'em, join 'em." They're now both under government conservatorship.

Some critics, like former Federal Reserve Bank of St. Louis chief William Poole, have suggested that the United States doesn't need institutions like Fannie and Freddie anymore, because the private sector has now figured out how to turn mortgages into securities and sell those to investors.

We all know how well that worked out last time around.

Just how much trouble are mortgage borrowers having with their loan servicers? These are the companies that send the monthly bills, foreclose when the payments don't come, and too often make it really hard for many borrowers to get loan modifications when they can't afford to keep up.

According to New York State Banking Superintendent Richard H. Neiman, borrowers are having a lot of trouble –- so much, indeed, that this week he issued a borrowers' bill of rights to make sure that servicers are dealing fairly and responsibly with customers. Neiman serves on the Elizabeth Warren-chaired Congressional Oversight Panel on TARP, where he heard an earful from homeowner advocates about consumers' problems with their servicers, especially about long delays in processing loan modifications while the foreclosure clock is ticking.

So what else will consumers be protected against?

A couple of weeks ago, I wrote about the $1.5 billion in new Home Affordable Modification Program funds exclusively for states with the biggest home price drops: California, Florida, Nevada, and Arizona (Michigan somehow made it in, too). Now the Treasury Department has announced Part 2 of that project – another $600 million for states with super-high unemployment: Rhode Island, North and South Carolina, Ohio and Oregon. Unfortunately, it misses its mark.

Let's be clear: The cash aid to the unemployed will bring badly needed relief to a lot of families. (As the Huffington Post reports this week, most are not seeing great results from HAMP.) But until short sales and deeds-in-lieu go from the last option to the first, the system will continue to be rigged in lenders' favor.

If you've been following the ups and downs – mostly downs – of the federal Home Affordable Modification Program, you know that the HAMP has been one big bottleneck, with just a fraction of homeowners who apply succeeding in getting permanent modifications to their mortgages.

Then two weeks ago the federal Department of Treasury trumpeted some great news about those lucky few who did make it through the process: as of June a tiny number of them, fewer than 6 percent, were ending up seriously behind on their mortgage payments after six months, with payments 60 days late or more.

Mission accomplished? Not quite.

Last week, with the help of a special $1.5 billion Obama administration fund for the states most devastated by property price declines and foreclosures, the state of Michigan launched its own program for unemployed borrowers who are having trouble paying their mortgages.

Unlike the federal Home Affordable Mortgage Program, Michigan is hoping to offer the one thing proven to help borrowers avoid foreclosure: cash payments, combined with principal reductions. Unemployed borrowers can get up to $750 month cash to help make mortgage payments, and up to $15,000 in principal reductions on mortgage debt.

There's just one problem: According to the Detroit Free Press, the nation's biggest lenders are not yet on board.

Homeowners looking for a hand with energy efficiency just got dealt a big blow – and the fallout could affect everyone looking to take out a mortgage.

As the Wall Street Journal reports, the federal regulator that oversees Fannie Mae and Freddie Mac announced this week that it will not permit homeowners with mortgages owned by those agencies to participate in property-assessed clean energy (PACE) programs.

PACE, which has been approved by legislatures in 23 states, lets homeowners finance weatherization projects by getting loans from their local government. Those loans then get paid back over time via property tax bills, much like a sewer assessment. In order to raise money for the loans, local governments sell bonds to investors.

That's not acceptable to the feds, who object to having other creditors in front of Fannie Mae and Freddie Mac's investors, when it's time to get paid back.

Are you trying to decide between buying a cozy house in town or a big place in a new subdivision? Today the Obama administration went public with a program that will help make the first choice the much better bet to hold its value over the long term.

It's called the Partnership for Sustainable Communities, and the idea behind it is to encourage real estate investment near mass transit. The U.S. Department of Housing and Urban Development and Department of Transportation are teaming up for the first time to make it happen. Altogether, they'll be giving local governments around the country $175 million this year to make the necessary preparations.

That's not a lot of money, but it could be the beginning of a sea change in how the government influences the real estate market.

Are you one of the millions who didn't make the cut for the federal loan modification program, because you weren't in bad enough trouble? If your loan is held by Fannie Mae or Freddie Mac, you may be in luck.

Worried that home prices will continue to decline, Fannie and Freddie are offering a hand to borrowers looking to shrink their mortgage payments. American Banker reports that Fannie Mae and Freddie Mac have begun offering loan modifications to borrowers who tried but couldn't qualify for the Home Affordable Modification Program because their housing costs are less than 31 percent of their income.

Why would the Feds do that?

Just because versions of financial reform have passed the House and Senate doesn't mean the mortgage lobbyists' job is over yet. The Senate bill put limits on how much money a mortgage broker or banker can make when they sell you a mortgage. Now mortgage industry associations are fighting to protect their right to profit without any restrictions.

Congress still has to work out the differences between the House and Senate bills before handing over to President Obama to sign. And while Wall Street is focusing its firepower to protect its lucrative business in derivatives – the explosive financial technology that brought down AIG -- the folks who make and sell mortgages have a different agenda.

Lenders would like to scratch an amendment to the financial regulation bill that tells mortgage retailers that they can't have their cake and eat it, too. The amendment would give lenders a choice of getting paid directly by the consumer through upfront fees, or by a higher interest rate for the customer -- getting what is essentially an advance from the lender against that extra future income from the loan.

They can't get both.

Next time you're inclined to complain about the bankers' bailout, remember that homebuyers are now on government life support as much as anyone.

This week, Federal Housing Administration chief David Stevens announced that his agency is now the largest source of home-purchase mortgages in the nation. According to the firm Potomac Partners, FHA insured $52.5 billion in purchase loans in the first three months of 2010. The government-controlled Fannie Mae and Freddie Mac purchased just $46 billion.

This is the first time in memory that FHA is the dominant player in the mortgage business, a role it hasn't really had since era of "Father Knows Best" in the 1950s.

What does FHA's new dominance mean for home buyers?

In 2008, Vermont had 137 foreclosures, the fewest of any state in the nation. It had precisely zero foreclosures in the first quarter of this year, according to RealtyTrac.

So why did Congress give it nearly $20 million in 2008 to deal with empty homes from the mortgage crisis? The same amounts went to Nebraska, Wyoming, West Virginia, Utah, and each of the Dakotas, which also have extremely low foreclosure rates. Will this affect home values in your neck of the woods?

Those are the kinds of questions the Obama Administration is now asking about the Neighborhood Stabilization Program, which has distributed $5.9 billion across the country to help states and cities board up, repair, sell or tear down empty, foreclosed houses.

Congress' first round of grants gave states a total of $3.9 billion to spend to stop vacant homes from blighting their streets. Every state got something, with a minimum of $19.6 million, no matter how few foreclosures they had. Hundreds of cities received grants as well.

They got 18 months to decide what to do with the money, and until 2013 to actually spend it.

Now the U.S. Department of Housing and Urban Development projects that nearly $1 billion of that money won't be committed by the first round of deadlines, coming up this September and October – and it wants it back.

Looking to get a mortgage to refinance your home at a low rate? Better check not only your bank account and credit score but your neighborhood's racial profile.

According to a new report that surveyed loans in seven major cities across the country: among the big four bank holding companies that now dominate the mortgage market -- Chase, Bank of America, Citigroup, and Wells Fargo -- the number of prime refinances jumped by nearly one-third in predominantly white neighborhoods in seven cities between 2006 and 2008, while they declined by the same amount in neighborhoods where most residents are members of minority groups.

Overall, for both purchase and refinance mortgages, prime lending plummeted by 60 percent in minority neighborhoods, compared with just 28 percent in areas where most borrowers are white.

The report from seven research and advocacy groups analyzes Home Mortgage Disclosure Act data for Boston, New York City, Charlotte, Chicago, Cleveland, Los Angeles, and Rochester, looking at loans that cost no more than 3 percent higher than the Treasury rate.

The new numbers suggest that the benefits of those expensive interventions are going to some neighborhoods much more than others – with race as a dividing line. Has racial profiling poisoned the mortgage application process?

Is $19 billion a lot of money -- or a small price to pay for keeping mortgages available to you at a reasonable price during the ongoing financial crisis and into the future? Ask yourself that as you take in the heated reaction to this news: The government overseer of Fannie Mae and Freddie Mac wants the U.S. Treasury to use that pile of treasure to keep them from collapse.

The latest take comes from Gretchen Morgenson at The New York Times, who asks a provocative question: Why aren't Fannie Mae and Freddie Mac part of the financial reform package going through Congress right now? That's the same question Senate Republicans have been asking. Last week, Sens. Richard Shelby, John McCain and Judd Gregg introduced an amendment to the reform bill that would eliminate Fannie and Freddie over the next few years.

Morgenson brings to her case the liberal economist Dean Baker, who suggests that Freddie Mac is somehow overvaluing new mortgages in order to prop up the mortgage markets. It would seem that we have a consensus across the political spectrum: Fannie Mae and Freddie Mac are a menace to the American taxpayer, vampirically sucking our hard-earned wealth.

Pretty awful, right? Not if you compare it to the garbage loans that Fannie and Freddie's virtually unregulated private competitors were dealing in.