U.S. Treasury Secretary eyes smaller federal role in housing finance

08:33, August 18, 2010      

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The federal government should maintain a role in the housing finance market to ensure reasonable and stable mortgage costs, while making room for more private participation, the U.S. Treasury Secretary Tim Geithner said Tuesday.

U.S. Treasury Secretary Tim Geithner and Press Secretary Robert Gibbs (L) hold a press briefing at the White House in Washington, June 16, 2010. (Xinhua/Reuters File Photo)

"Fixing this system is one of the most consequential and complicated economic policy problems we face as a country," Geithner told a housing summit convened in Washington.

Geithner and Housing and Urban Development Secretary Shaun Donovan brought together leading academic experts, consumer and community organizations, industry groups, and other stakeholders for an open discussion about housing finance reform.

The summit, known as the Conference on the Future of Housing Finance, is considered to be a preparation for a housing finance reform proposal to be delivered to Congress by January 2011.

"We will not support returning Fannie and Freddie to the role they played before conservatorship, where they fought to take market share from private competitors while enjoying the privilege of government support," said Geithner.

Fannie Mae and Freddie Mac have received almost 150 billion dollars in federal aid since they were put under federal control in September 2008 amid huge losses on mortgage-related assets. The two mortgage titans, together with the Federal Housing Administration, guarantee more than 90 percent of all mortgage loans across the country.

One of the most controversial parts of the housing finance reform is what kind of role the federal government should play in the future. Some propose the government to keep its hands off to avoid using taxpayers' money to subsidize mortgage lenders' losses, while others argue the government should maintain its presence to ensure reasonable and stable mortgage rates.

Geithner said the federal government should continue to provide support for the housing finance market, but in a "carefully designed" way.

"I believe there is a strong case to be made for a carefully designed guarantee in a reformed system, with the objective of providing a measure of stability in access to mortgages, even in future economic downturns," he said. "The challenge is to make sure that any government guarantee is priced to cover the risk of losses, and structured to minimize taxpayer exposure."

Donovan, the housing secretary, held a similar view as his colleague.

"The government's footprint in the housing market needs to be smaller than it is today,"he said. "We need to work to foster a strong but healthy market for private capital to harness the vitality, innovation and creativity in our system in a responsible way."



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