While politicians bury their heads in the sand and focus on pointing fingers for blame, building mosques and Bristol Palin, the single largest problem our economy is dealing with is still housing. Until we have a solid plan in place to clean up the housing mess and a solidly revised plan for the future of financing housing, the chance of future financial meltdowns remains strong and certain.  We MUST remove politics from this debate: voters should insist on it. The lax laws governing qualifying for housing financing has cost this country way too much. And both parties are to blame for this in their embarrassing quest for power.

Reuters reports that the Obama administration called for “fundamental change” at Fannie Mae and Freddie Mac, but a long, politically explosive debate lies ahead on the future of the bailed-out mortgage finance giants and U.S. housing policy.

U.S. Treasury Secretary Timothy Geithner on Tuesday raised basic questions with housing industry leaders about the U.S. government’s long-standing role in subsidizing and supporting the $10.7 trillion housing market.

“It is not tenable to leave in place the system we have today,” Geithner said at a conference hosted by the Treasury Department almost two years after the government seized Fannie Mae and Freddie Mac to save them from collapse.

Since then, the two firms have received nearly $150 billion in taxpayer bailout money and have been placed in conservatorship, sharply restricting their past activities.

“We will not support returning Fannie and Freddie to the role they played before conservatorship, where they took market share from private competitors while enjoying the perception of government support,” Geithner said.

“We will not support a return to the system where private gains are subsidized by taxpayer losses.”

The conference, with some of the mortgage sector’s top lenders and investors, is billed as a “listening session” for the administration to gather ideas as it develops an overhaul plan by January. No major changes are expected before 2011.

“It’s safe to say there’s no clear consensus yet on how best to design a new system,” Geithner said. “But this administration will side with those who want fundamental change.”

With Congress focused on elections in November, federal spending coffers depleted and nerves on edge about changes that could trigger another housing crash, lawmakers looked likely to move slowly on overhauling housing finance, analysts said.

Enthusiasm in some quarters for removing government from housing finance was certain to collide with the political reality that housing subsides, such as the mortgage interest deduction, are deeply entrenched facets of U.S. economic life.

The problems and costs of Fannie Mae and Freddie Mac were not addressed in the sweeping Wall Street reform legislation approved by the U.S. Congress in July — a yawning gap in the Democratic bill that Republicans have sharply criticized.

Bank and mortgage-backed securities investors are watching warily as the administration weighs options, ranging from full nationalization at one extreme to privatization with no government support at the other, and alternatives in between.

Geithner said there is a strong case for a carefully designed government guarantee for mortgages, and that a key question will be whether the private sector can provide a form of insurance or guarantee on its own.

“The challenge is to make sure than any government guarantee is priced to cover the risk of losses, and structured to minimize taxpayer exposure,” Geithner said.

A government guarantee is considered essential to at least one major investor — Bill Gross, co-founder of bond-trading firm Pacific Investment Management Co. Gross told the housing conference participants that a government guarantee is needed to keep mortgages affordable.

Geithner also said government should reassess how it promotes access to affordable housing.

Shaun Donovan, secretary of Housing and Urban Development, told the conference the government’s “footprint” in housing finance needs to be much smaller than it is today.

Fannie Mae, Freddie Mac and the Federal Housing Administration now back 90 percent of new U.S. home mortgages, he added.

Geithner stressed a smooth transition period so as not to disrupt the fragile housing market. “As we go through this transition, it is important that consumers maintain access to credit at attractive rates,” he said.

Fannie Mae and Freddie Mac both jumped into subprime mortgages during the housing boom in the early 2000s in an attempt to broaden home ownership — with disastrous results.

Participants at the conference included executives from Wells Fargo and Bank of America, as well as Lewis Ranieri, who helped develop the model for the private mortgage-backed securities market that was central to the housing bubble that burst in 2007-2008.

The conference occurred a day after U.S. home-builder sentiment unexpectedly fell for a third straight month in August to its lowest level in nearly 1-1/2 years, according to a survey that added to evidence of slowing economic recovery.

A stubborn housing crisis is likely to weigh on voters already concerned about a sluggish economy headed into November elections.

Across America, the average congressional district has more than 9 percent of its mortgages delinquent by 90 days or more, according to a study by Deutsche Bank. That’s more than 2-1/2 times the delinquency rate on election day in 2008