'Everyone wants to get rid of Fannie and Freddie,' said Frank Sorrentino, chief executive at the $1 billion-asset ConnectOne Bank, a community bank in Englewood Cliffs, N.J. 'But I don't think this country has the political appetite to lose many of the things they enable.'

The biggest reason is that the firms play such a central role in the mortgage market, including access to the 30-year, fixed-rate mortgage. That product, which doesn't exist in much of the world, is popular with Americans who enjoy stable payments even if interest rates rise.

The firms don't make loans. They buy them from lenders and package them into bonds. That middleman role created deep markets for mortgage securities by matching banks with investors willing to manage the risks of holding long-term, fixed-rate mortgages.

Fannie and Freddie got into trouble because they took on more risk over the past two decades while using their political clout to beat back attempts to force them to hold more capital. They amassed huge investment portfolios to profit from the difference between their lower cost of capital -- a benefit of an implied federal guarantee because Congress created the firms -- and the rates they could earn on mortgages.

The companies experimented with loosening lending standards in the late 1990s. But in the early 2000s, Wall Street firms raced ahead of them by packaging larger quantities of riskier loans that often weren't eligible for backing by Fannie and Freddie. By 2005, Fannie and Freddie were losing market share. They began loosening their own loan standards to compete, taking on more risks at what would later prove to be the worst possible time. As the housing bust deepened in 2008, lawmakers called on the firms to take on more risks to help the market.