WASHINGTON – Treasury Secretary Timothy Geithner is telling Congress that the Obama administration wants Congress to approve legislation overhauling Fannie Mae and Freddie Mac, the nation's troubled housing finance giants, within two years.
In remarks he planned to deliver Tuesday to the House Financial Services Committee, Geithner said that failing to act by then would worsen uncertainty in the financial markets. He also warned that acting hastily could destabilize the housing finance market and jeopardize the recovery of the economy — remarks that seemed a veiled reference to the desire by some Republicans to end or quickly constrict the government's role in supporting the nation's mortgage system.
"Housing is a critical part of our economy and we will proceed with our plan for reform with great care," Geithner said in his statement, which was released late Monday by the Financial Services Committee. "Our objective, after all, is a healthier, more stable housing finance system."
Geithner's comments come as 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.
Fannie and Freddie guarantee or own about half of all U.S. mortgages, and with other federal agencies played a role in nearly 9 of 10 new mortgages over the past year as private lenders have remained worried about ongoing problems in the housing market. The two companies nearly collapsed in 2008 but have been kept alive with $150 billion — so far — in taxpayer dollars.
Geithner's testimony comes less than three weeks after the administration released a report proposing a stark though gradual reduction in the government's role in the mortgage system. The report presented Congress with three options for slowly dismantling Fannie and Freddie, ranging from severely limiting the federal role in housing to having Washington "reinsure" some mortgage investments that are already guaranteed by private lenders.
"We are committed to a system in which the private market — not American taxpayers — bears the burden for losses," Geithner said.
Even so, Geithner said that the roles of Fannie and Freddie should be reduced carefully.
"Closing he doors and Fannie Mae and Freddie Mac without consideration for the pace of economic recovery could shock an already fragile housing market, severely constrain mortgage credit for American families, and expose taxpayers to unnecessary losses," Geithner said.
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.