As we reported last week, Treasury Secretary Henry Paulson was quick to tell Washington that it would be up to the new Administration to restructure mortgage giants Fannie Mae and Freddie Mac and outline their future role in the housing market, placing the responsibility squarely on the shoulders of either Barack Obama or John McCain, come January.

Both presidential candidates have endorsed the government's rescue of the two mortgage giants and have been vocally critical of the firms' top management, but that is where their common positions end. When it comes to a long-term plan for the nation's largest housing financiers, the Democratic party's presidential hopeful Barack Obama sees a lasting federal role. The Republican presidential nominee John McCain, on the other hand, proposes privatization.

Obama has stopped short of providing any details of his specific plan to address the housing crisis, but has made it clear that a return to the status quo is unacceptable. He has said that any plan must clarify the true public and private status of our nation's housing policies.

At a campaign stop in Indiana last week, Obama said the government must put the interests of taxpayers and homeowners first as it moves in to take control of Fannie Mae and Freddie Mac, who together hold or back nearly half of all mortgage debt in the United States.

According to the Congressional Budget Office, the government's bailout of the two government-sponsored enterprises (GSEs) could cost taxpayers as much as $25 billion, however Secretary Paulson has already begun to warn that it is too early to estimate the potential cost of the intervention.

“Any action we take must be focused not on the whims of lobbyists and special interests worried about their bonuses and hourly fees, but on whether it will strengthen our economy and help struggling homeowners,” Obama told reporters in Indiana. He also said any actions should be carefully weighed against the impact they might have on community and regional banks.

In response to last week's takeover announcement, McCain said it is essential to restructure the mortgage giants. He wants the government to take over the two agencies, split them up, and then exit the mortgage-finance business by selling them off in pieces, a solution that has been proposed by fellow Republican and former Federal Reserve Chairman Alan Greenspan.

Fannie Mae and Freddie Mac are “the classic example of why we need change in Washington” and symbolize “the kind of cronyism, corruption, that's made people so justifiably angry,” McCain said in a television interview for CBS's “Face The Nation” last week.

“We need to keep people in their homes, but we can't allow this to turn into a bailout of Wall Street speculators,” McCain later told campaign supporters in New Mexico.

At a rally in Colorado, McCain's running mate, Alaska's Governor Sarah Palin, said the two home loan agencies have “gotten too big and too expensive to the taxpayers.”

“The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help,” said Palin, who did not elaborate on the specifics of how the Republican presidential ticket would bring that about.

No matter the outcome of the November election, the new Administration will be tasked with rallying the support of a Democratically-controlled Congress that has a history of strong backing for Fannie Mae and Freddie Mac. “You can't eliminate them,” Chris Dodd (D-Connecticut), chairman of the Senate Banking Committee, told Bloomberg Television last week. “They have been a tremendous source of stability and strength” for the housing market.

Discussing the uncharted future of the GSEs, Secretary Paulson said, “Government support needs to be either explicit or non-existent, and structured to resolve the conflict between public and private purposes, and policymakers must address the issue of systemic risk.”

Paulson continued, “I recognize that there are strong differences of opinion over the role of government in supporting housing, but under any course policymakers choose, there are ways to structure these entities in order to address market stability in the transition and limit systemic risk and conflict of purposes for the long-term.”

“We will make a grave error if we don't use this time out to permanently address the structural issues presented by the GSEs,” Paulson warned.