1)Tightly regulate Freddie/Fannie, reduce their size and make them more accountable to the public.

Every effort must be made to avoid completely dismantling Fannie/Freddie. Suggestions that the government should slice up these GSEs and sell them off in little privatized pieces would only extended the process of socializing their losses, but privatizing their profits. At the same time, business obviously can not go on as usual. In order to lessen the public's financial exposure, Fannie and Freddie must be reduced in size. Furthermore, strict controls and oversight need to be placed on the kind of investments Fannie and Freddie can make and the manner in which they make them.

As Gretchen Morgenson commented,

[T]axpayers surely seem entitled to get something in return for their Mac 'n' Mae ownership…Here is a modest suggestion for James B. Lockhart, chairman of the F.H.A., to consider: Do the owners – us deep-pocketed taxpayers – a favor, and open up Mac 'n' Mae's books so we can see exactly what we own…Force both companies to disclose details on every mortgage they guaranteed or purchased in the last 10 years. This would include loan type, the year when the loan was made, the original rating on the security and its originator...Such visuals might help keep the Mac 'n Mae mess from happening again.

2) Focus the conversation on affordable housing.

It's important to remember that Fannie/Freddier were originally created to enable working class Americans to own their own homes. When we talk about how Fannie and Freddie should be handled during and beyond conservatorship, the discussion must be guided primarily by a commitment to fulfilling this affordable housing mandate.

For example, the Housing and Economic Recovery Act of 2008 that was recently signed into law, establishes a national Housing Trust Fund. 90% will help produce, preserve, rehabilitate and operate rental housing, and 10% will go towards supporting homeownership. The Fund will be capitalized by contributions from Fannie and Freddie. Whatever restructuring of Fannie and Freddie that occurs should not abandon this program and the other affordable housing functions of Fannie/Freddie.

3) Acknowledge that both presidential administrations and political parties had a large hand in exercising poor oversight over Fannie and Freddie and in presiding over reckless investment decisions.

The Fannie/Freddie debacle is bi-partisan made. The lack of operational transparency, the deceptive accounting practices, Fannie and Freddie's investments in predatory mortgages and mortgage-backed securities, and their resistance to reform led by armies of lobbyists, extend through several presidential administrations, particularly those of Bill Clinton and his successor, George Bush. Both parties own the problem as well as the responsibility to fix it.

4) Declare the Ownership Society Dead.

The guiding principle behind the abuses in the recent subprime lending era - pushing homeownership at all costs - has proven to be a catastrophically bad idea. It created the housing bubble, burdened millions of Americans with abusive forms of debt, led to more homeownership losses than gains, and now threatens the very stability of the American economy. Stop suggesting that homeownership is for everyone and start promoting alternatives, like limited equity and affordable rental options, in addition to traditional homeownership.

5) Reduce reliance on mortgage backed securities; create incentives for banks to keep mortgages - and risk - on their books.

The subprime mortgage crisis would not have occurred if lending institutions had not routinely passed risk along a parade of industry actors. As Stephen Labaton of the Times recently noted, "Many European counties rely…on what are known as covered bond markets in which banks get financing from investors to make mortgages that remain on the books of those banks…The banks thus have a powerful incentive to make sure their loans are good ones."

Secretary Poulson and several banks have already discussed kick-starting a covered bond market and more should be done to promote this approach.

6) Recognize and continue Fannie/Freddie's Positive Market functions.

In addition to expanding a secondary market for mortgages, Fannie and Freddie helped determine loan standards by dictating the terms of what was known as a conforming mortgage. In spite of their historical investments in predatory mortgages, analysts have noted that exotic mortgages would have been even more prevalent without the presence of Fannie and Freddie.