After President Obama signs into law an overhaul of financial regulation at a ceremony set for
Wednesday, his administration will turn to reforming an area at the root
of the financial crisis: the U.S. housing market.

Responding to the collapse in home prices and the huge number of
foreclosures, the Obama administration is pursuing an overhaul of
government policy that could diverge from the emphasis on homeownership
embraced by former administrations.

"In previous eras, we haven't seen people question whether homeownership
was the right decision. It was just assumed that's where you want to
go," said Raphael Bostic, a senior official in the Department of Housing
and Urban Development. "You're not going to hear us say that."

Bostic, who has published leading scholarship on homeownership, added
that owning a home has a lot of value, but "what we've seen in the last
four years is that there really is an underside to homeownership."

The administration's narrower view of who should own a home and what the
government should to do to support them could have major implications
for the economy as well as borrowers. Broadly, the administration may
wind down some government backing for home loans, but increase the focus
on affordable rentals.

The shift in approach could mean higher down payments and interest rates
on loans, more barriers to lower-income people buying houses, and fewer
homeowners overall, government officials said. But it could also pave
the way for a more stable housing market, one with fewer taxpayer
dollars on the line and less of a risk that homeowners will not be able
to pay their mortgages. And it could spell changes throughout the
financial markets, as investors choose new places to put their money if
the government withdraws some incentives for investing in the U.S.
mortgage market.

The carnage in the nation's housing market may have been the most
destructive and enduring element of the recession. Since 2008, the
federal government has committed hundreds of billions of dollars, much
of it nonrecoverable, to try to keep housing afloat and ensure that
borrowers can get loans. Fannie Mae and Freddie Mac, the
mortgage-finance giants seized by the government in September 2008, and the
Federal Housing Administration have been nearly the only sources of
backing for new loans.

Now the Obama administration is beginning to look for ways to gradually
unwind the massive government programs supporting homeownership and
restore the traditional role of the private sector. Three months ago,
the Treasury Department and HUD released seven broad questions about the future of
housing. Comments from the public are due Wednesday, and the
administration is required by the financial overhaul legislation to
offer a proposal for housing reform by early next year, including
restructuring or replacing Fannie and Freddie.

The decision to focus more on rental housing and less on homeownership
differs in many ways from the Bush and Clinton administrations.
President Bush touted an "ownership society" that sought to increase
homeownership rates, specifically for low-income people. President
Clinton had a "National Homeownership Strategy" that advocated for a
specific homeownership rate.

HUD Secretary Shaun Donovan has been most out front in the
administration in advocating a new approach. "While we continue to
promote affordable homeownership, for many Americans, renting will
continue to be the only or preferred option," he told lawmakers
recently.

Other administration officials, such as Treasury Secretary Timothy F.
Geithner, have also called for a new housing finance system, but have
been less explicit about how it might look. He has said he favors
government support both for homeownership in general and for low-income
people.

But the Treasury has been divided about how to communicate its approach
and reluctant to discuss it publicly, as the housing market remains
fragile.

Officials in a new Office of Capital Markets and Housing Finance set up
in Treasury are studying options for reform, and generally have
concluded that federal policy should focus on what they call
"sustainable homeownership" and not on simply boosting the homeownership
rate.

Andrew Williams, the deputy assistant secretary for public affairs, said
not to read too much into the notion that the administration's policy
differed significantly from previous administrations. "[Y]ou are
overreading some kind of hard pivot here," he said in an e-mail. It's
"just a recognition of how much the foreclosure crisis has hurt
homeowners."

Williams declined to make a Treasury official available to discuss the
administration's housing policy on the record.

Supporters of rental housing say they perceive an early but markedly
different tone from the Obama administration. "My impression is that the
administration at pretty much every level is serious about a balanced
policy," said Vincent O'Donnell of the Local Initiatives Support Corp.
"Their purpose is to look at and make more workable rental housing
programs."

People on different sides of the debate warn about diverting too far
from homeownership policies. "This is confusing to me –– the view that
the best way to help someone accumulate savings over time is to
subsidize their rent now," said Keith Hennessey, director of the
National Economic Council under Bush.

"I want to be careful about the move away from homeownership," said
Janis Bowdler of the National Council of La Raza, a Hispanic civil
rights group. "We have to define more clearly what we mean by
homeownership for low-income families and make sure we don't . . . come
to a very simplistic reading of our recent history that it was simply
lending to low-income families that got us into trouble."