WASHINGTON -- The Obama administration wants Congress to approve legislation within two years that overhauls Fannie Mae and Freddie Mac, the nation's huge but financially feeble housing market giants, Treasury Secretary Timothy Geithner is telling lawmakers.
In remarks prepared for delivery Tuesday to the House Financial Services Committee, Geithner says failure to act by then would worsen market jitters and leave serious problems unaddressed. But in an apparent warning to some Republicans who want to quickly pull the government out of its role in supporting the mortgage system, he's also warning that acting too fast would hurt too.
"While we are confident that the steps we have laid out follow the right path, haste would be counterproductive -- possibly destabilizing the housing finance market or even disrupting the broader recovery," Geithner says.
The Treasury chief's testimony comes less than three weeks after the administration released a report calling for a scaling back of Fannie and Freddie and much of the rest of the federal role in housing, a process the administration has said should occur gradually over several years. Geithner's setting of a time frame for the overhaul legislation underscores President Barack Obama's desire to start the clock on many of those changes.
"Reforming our country's housing finance market is an essential part of our broader efforts to help ensure Americans will never again suffer the consequences of a preventable economic crisis," Geithner says.
It's unclear whether major legislation such as this could be approved during next year's presidential election campaign, when partisan divisions heighten.
Fannie and Freddie guarantee or own about half of all U.S. mortgages. Along with other federal agencies, they played a role in nearly 9 of 10 new mortgages over the past year, as private lenders have remained nervous about making new loans. The two companies nearly collapsed in 2008 as the housing market crumbled, but have been kept alive with $150 billion -- so far -- in taxpayer dollars.
Congress is trying to decide how to reshape the federal role in the housing market, which remains weak, with low prices and huge numbers of foreclosures in Florida, parts of the Southwest and other regions. While both political parties concede that changes are needed to protect taxpayers and revive private lending, Republicans tend to want to move more strongly while Democrats express more concerns about maintaining the government's role in helping lower-income families.
To wind down Fannie's and Freddie's roles in the market, the administration also wants to take steps for which it does not need congressional action, such as decreasing the size of loans the two companies may buy. Geithner also reiterated administration plans to constrict the Federal Housing Administration's role in making loans. Some Democrats and consumer advocacy groups have complained that such actions will make it harder for many families to purchase homes.
The administration's report offered three options for overhauling Fannie and Freddie. One would limit the government to helping poor and middle-class borrowers through agencies like the FHA. The second would have the government back private mortgages, but mostly during times of economic crisis. The third would have the government "reinsure" some mortgage investments that are already guaranteed by private insurers.
The two companies buy mortgages from banks and other primary lenders, package them together and sell them with a guarantee that investors would be repaid in case of default. That system helps keep interest rates lower and provides lenders with fresh cash to make additional loans.