The Treasury Department says in a report released Friday that the government should withdraw its support for the mortgage market slowly, over five years or more. The report describes a path for winding down the troubled mortgage giants Fannie Mae and Freddie Mac.
The three options are: end the government's role in guaranteeing most mortgages; support the mortgage market only in times of stress; or provide a government guarantee for mortgage investments created by private companies.
Under any scenario, the private sector will assume a greater role in housing finance as the government scales back its involvement. The government currently owns or guarantees more than 90 percent of U.S. mortgages.
The bailouts of Fannie and Freddie have cost taxpayers nearly $150 billion.
The report comes after years of debate about how to end the government's role in housing. The options have been discussed for years as well.
By handing the decision to Congress, the administration sidesteps one of the most complex and politically explosive questions facing the financial system. Any of the three options will almost certain force mortgage rates to rise.
Republicans have called for Fannie and Freddie to be abolished. But there is a growing recognition that drastic action would upend the housing finance system, threatening the broader economy.
A near-complete withdrawal by the government probably would end the popular 30-year fixed rate mortgage or, at least, make it more expensive. Banks would prefer adjustable-rate mortgages that would fluctuate with the markets.
However, all three options maintain some level of government support, either through guarantees or through existing agencies,such as the Federal Housing Administration.
Administration officials said the proposals will end the hybrid model of public-private companies that left the public on the hook for billions when Fannie and Freddie failed.