In his State of the Union Address on Jan. 28, President Barack Obama briefly referred to his hopes for reforming Fannie Mae and Freddie Mac, the two government-sponsored and publicly traded entities that support the mortgage market by buying and securitizing mortgages. Both companies failed during the 2008 financial crisis and had to be taken over by the government.

By “reforming,” the president unfortunately doesn’t mean “improving.” Rather, he likely means “privatizing.” In fact the most likely form of privatization at this point would feature the sort mix of private incentives and government guarantees that makes another financial disaster virtually certain.

The smart money in Washington is betting on the Housing Finance Reform and Taxpayer Protection Act, sponsored by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va. The Corker-Warner bill, put together by two of the more centrist senators in both parties, does not simply get the government out of the mortgage guarantee business — an idea that actually has a plausible argument in its favor.

Instead, Corker-Warner would replace Fannie and Freddie with a new a system in which private financial institutions could issue mortgage-backed securities (MBSs) that carry a government guarantee. In the event that a large number of mortgages in the MBS market went bad, the investors would be on the hook for losses up to 10 percent of their value, after which the government would cover the rest.

If you think that sounds like a reasonable system, then you must have already forgotten the housing crash and ensuing financial crisis. At the peak of the crisis in 2008 and 2009, the worst subprime MBSs were selling at 30 to 40 cents on the dollar. This means the government would have been picking up a large tab under the Corker-Warner system, even if investors had been forced to eat a loss equal to 10 percent of the MBS price.

The precrisis financial structure gave banks an enormous incentive to package low-quality and even fraudulent mortgages into MBSs. The system laid out in the Corker-Warner bill would make these perverse incentives even larger. The biggest difference is that now the banks can tell investors that their MBSs come with a government guarantee, so they stand to lose at most 10 percent of the purchase price. If the banks had little difficulty selling junk-filled MBSs that carried no government guarantee at all, just imagine a Corker-Warner future with government subsidies.

Certainly the Justice Department’s treatment of the bankers who packaged fraudulent mortgages and misrepresented their quality to buyers will not discourage the same behavior in the future. None of these people went to jail, and in most cases they are much richer today than they would have been if they had pursued an honest career.