After a long and wrenching plunge, the housing sector has finally bottomed out and seems to be recovering. According to the latest S&P/Case-Shiller index, home prices rose in nearly every metropolitan area during 2012 and turned in a solid gain of 7 percent nationally. Celebration would be premature, however. The human cost of the housing crash has been fearful. Trillions of dollars of household wealth have evaporated, 5 million people have lost their homes, and 22 percent of the remaining homeowners still have mortgages exceeding the value of their properties. With housing prices still 30 percent below their (admittedly unrealistic) 2006 peak, it will take average homeowners many years to rebuild the savings that their home equity once represented.

Even worse, the federal government’s response to the housing crisis is now becoming part of the problem. When the sector crashed, destroying the balance sheets of Fannie Mae and Freddie Mac, the government had no choice but to take them over, at a net cost to the taxpayer (so far) of $141 billion—by far the costliest bailout in the Great Recession. And the end is nowhere in sight, because the federal government has actually expanded the role of Fannie and Freddie mortgage-backed securities since the crash. Mortgage-backed securities—bundles of mortgages sold to investors—are the principal source of capital for the housing sector. By 2011, securities backed by government agencies—Fannie Mae, Freddie Mac, and Ginnie Mae—accounted for a stunning 97 percent of the MBS market. As for individual mortgages, government agencies accounted for 88 percent of loan originations in 2010, compared to only 47 percent in 2007 and 35 percent in 2006. Without the federal government, it seems safe to say, there wouldn’t be a functioning housing market today at all.

This is no one’s idea of a long-term fix, however. Unfortunately, the Obama administration has otherwise been AWOL on housing. Not only did it do little to assist distressed homeowners, it has not pushed for the fundamental reforms that are needed to prevent future housing meltdowns and to restore the appropriate role of the private sector in housing finance.

Enter the Bipartisan Policy Center with a far-reaching report, “Housing America’s Future.” The BPC report covered a wide range of housing issues beyond single-family homes, including affordable rentals, rural housing, and so-called Naturally Occurring Retirement Communities (NORCS) that allow Americans to age in the neighborhoods where they raised their children.

While all the commission’s recommendations deserve serious consideration, I want to focus on the heart of the matter—its proposals to reform our system of housing finance. The key objective is to ratchet down the involvement of the federal government while bringing the private sector back in. To do this, the commission offers two key proposals.