Fannie Mae and Freddie Mac, the troubled financial giants which keep the money flowing to local mortgage lenders, are not likely to regain their former dominance over the secondary mortgage market, a blueprint for the future prepared by a blue-ribbon panel of lending industry leaders suggests.

The Council to Shape Change also believes that elimination of the mortgage interest tax deduction would have its major impact on people who already own homes, but would not substantially alter the playing field for future home buyers.

"There would not be a fundamental change in the manner in which borrowers finance the purchase of a home," the committee says in a wide-ranging report entitled, "Outlook for the Real Estate Industry," distributed last week to members of the Mortgage Bankers Association.

The 182-page tome is the product of six months of meetings, deliberations and free-wheeling debate among the 19 members of the council who were appointed last October by MBA Chair Regina Lowrie to help prepare the association and its member-businesses for the changes they will be facing over the next five to 10 years.

But the report stresses that the panel focused on what's "likely to happen" to the real estate finance industry over the next decade rather than what "should" happen.

"This is not a policy document; it has nothing to do with policy," said the Council's leader Andrew Woodward, the retired chairman of Bank of America Mortgage and a former MBA chairman. "We are simply forecasting how things might shake out."

Woodward also stressed that the document is just as likely to raise questions among readers as to answer them -- "and we hope it does."

"These are just opinions," he said of the book's conclusions. "I don't think there is any right or wrong answer."

While much of what is contained in the report is "not new news," it is the first time the information has been "pulled together in a single volume," he added.

The report is divided into six sections, each with several subsections -- and each "rich with thought," according to Woodward. But one of the chapters the former MBA chairman finds most compelling is the one deals with the changing face of the mortgage banking business itself.

Mortgages are no longer a stand-alone product but rather an important part of the financial services industry, the section in the Executive Summary called "Convergence" says.

"Borrowers increasingly will view their mortgage as one of a number of financial products they consume," it says. "Investors increasingly will view mortgages as one of a number of fixed-income investments they hold."

But because borrowers and investors both have access to a growing array of lenders and products -- and "are more willing to choose innovative products and companies that match their needs" -- the concept of "owning the customer" will prove to be a faulty premise, the report suggests.

The council also predicts that real estate finance will lose its status as an asset class while retaining its identity as a specialized industry. And it says the move from private financing of commercial real estate loans to public debt issuances "is likely an irreversible trend."

In addition, the council believes the private label market for both residential and commercial mortgages will continue to grow significantly, regardless of what lies ahead for the GSEs.

Fannie and Freddie, which have been brought to their knees by accounting irregularities, will continue to focus on long-term, fixed-rate products, and will rise to the occasion whenever there is a shock to the economy. But whenever the market drifts away from the GSE's "sweet spot," the private label sector's share of issuances will increase.

To hold their share, they report says, the GSEs will have to become more innovative, which is something they haven't been of late.

Actually, whether Fannie and Freddie have ever been true innovators is open to debate. While they are often credited with bringing new products to the market, those products typically were invented by local lenders and then refined by the GSEs. Moreover, since the two companies accounting difficulties became public, they have not been nearly as aggressive.

But going forward, the report warns that more fresh and novel products will be required to meet the needs of the well-documented influx of new borrowers, mainly immigrants but also aging baby boomers and tech-savvy young home buyers who will not only "force the industry" to come up with new products but also to alter their processes, channels and workforce."

"The real estate finance industry is a bridge between borrowers and investors," the report says. "Real estate finance customers, both investors and borrowers, will demand increasingly specialized products."

That includes servicing, according to the 19 industry soothsayers, who note that while separate programs will be needed to service the highly customized products that will be devised, it could be a decade before loan administrators will be able to jettison their monolithic legacy systems.

At the same time, the Council points out that servicing in a changing businesses, and that servicers "are undergoing a change in mindset."

"Servicing is increasingly being viewed as a profit center, not just a cost to be minimized," the report says. "There are significant opportunities for servicers to build on their relationship with the borrower, treating the servicing group as another organization to build on their relationships."

On the mortgage interest deduction, the industry prophets say that if the cherished write-off is curtailed without any other changes in the tax code, the likely impact would be a change in home values, particularly in high-cost, high-income states like New York and California.

But if the benefit were to be phased out in combination with other changes that would be favorable to the economy, a significant reduction in marginal tax rates, for example, or elimination of the Alternative Minimum Tax, the net effect "could be neutral or perhaps even beneficial for the market."

Even if implemented in isolation, the loss of the deduction would mostly impact owners in the middle of the pack as opposed to owners at the lower end of the home price scale who tend not to itemize and those at the high end whose write-offs tend to be limited by the ATM or the $1.1 million cap on the mortgage interest deduction.

The "Outlook" is divided into six sections -- economic and fiscal policy, capital markets, residential borrowers and products, commercial and multi-family borrowers and products, technology and industry structure.