On July 8, 2010, the troubled U.S. residential mortgage funds providers Fannie Mae and Freddie Mac said goodbye to the New York Stock Exchange. Despite gloomy future prospects, the two companies still provide much of the funding for mortgage lenders. Their destiny will directly dictate how the housing finance markets fare and where the U.S. economy is headed. Zhang Monan, a researcher at the State Information Center, discussed this issue in an article at Sohu.com. Edited excerpts follow:

As a dominant force in the U.S. housing mortgage market, Fannie Mae and Freddie Mac will have a tremendous influence on the entire market and the broader economy.

Bonds issued by Fannie Mae and Freddie Mac enjoyed the same low cost of financing as U.S. government bonds. This was often considered the external factor propelling the two companies to step up reckless expansion and become unmatched behemoths at the center of the U.S. housing financial systems. Many claim their over-leveraging played a major role in inflating a housing bubble that soon burst and led to a painful recession.

An implicit credit guarantee extended by the U.S. Government was considered the core of their profit model. With such a guarantee, profits of the two companies were privatized, but their losses were shared by the public.

As a show of support for the two firms, the U.S. Government provided a series of favorable policies, including exempting the two companies from certain federal securities laws and a $2.25-billion line of credit from the U.S. Department of Treasury, if necessary.

By the time the U.S. Government took control of the two firms in 2008, their mortgage loans amounted to about $5 trillion, accounting for 44 percent of the country's mortgage market.

Since they were determined to be "too big to fail," the U.S. Government spared no effort in rescuing the two beleaguered financiers at the height of the 2008 financial crisis. These rescuing efforts have put the two distressed companies on the shoulder of the government.

The problem, though, was that the market had yet to find its feet. The National Association of Realtors said the pending home sales index in June declined 2.6 percent month on month, but it plunged nearly 20 percent compared with June 2009. The sales of existing homes, accounting for about 90 percent of the U.S. housing market, also fell 5.1 percent in June from May.

The U.S. Government is clearly aware of the urgency in overhauling the housing finance market. On August 17, the government hosted a conference on the future of housing finance, and plans to develop a comprehensive reform proposal for delivery to the Congress by January 2011.

No matter what, a looming problem confronting the policy makers remains. The toxic assets incurred by the sub-prime mortgage fallout are yet to be cleared, though some have been moved to the balance sheet of the Federal Reserve. Will Fannie Mae and Freddie Mac be completely nationalized, reorganized or privatized? This will be a conundrum for the United States.