U.S. Treasury Secretary Timothy F. Geithner said Congress must pass housing-finance legislation within two years to avoid more taxpayer-funded bailouts.
Without action, the housing market could remain vulnerable to flaws that led to the 2008 credit crisis, Geithner said today at a House Financial Services Committee hearing in Washington.
“We are faced with difficult choices that will involve real trade-offs,” Geithner said. “The challenge before us is to strike the right balance between providing access to mortgages for American families and communities, managing the risk to taxpayers and maintaining a stable and healthy mortgage market.”
Fannie Mae and Freddie Mac, the mortgage-finance companies operating under federal conservatorship, have been sustained by $154 billion in Treasury funds since they were seized in September 2008. The two government-sponsored enterprises own or guarantee more than half of U.S. mortgages.
“It is very important that we wind down Fannie Mae and Freddie Mac at a careful and deliberate pace,” Geithner said. Moving too quickly “could shock an already fragile housing market, severely constrain mortgage credit for American families and expose taxpayers to unnecessary losses.”
U.S. Representative Spencer Bachus, the Alabama Republican who leads the Financial Services Committee, said it is a good sign that Republicans and Democrats seem to agree that the government-sponsored enterprise should be wound down.
“It is very encouraging to me that there is now a bipartisan recognition that we must move toward a private market rather than one where the government backstops 90 percent of all mortgages,” Bachus said in his opening remarks.
Geithner and Housing and Urban Development Secretary Shaun Donovan on Feb. 11 released a list of recommendations for reducing government’s role in housing finance. Under the plan, retained portfolios at Fannie Mae and Freddie Mac would shrink by at least 10 percent a year from their current levels of about $1.5 trillion.
Representative Scott Garrett, the New Jersey Republican who leads a Financial Services subcommittee, said the administration plan was “somewhat light on specifics and without a concrete position on a way forward.”
The Treasury’s plans for immediate action include increasing guarantee fees, raising capital standards and requiring bigger down payments from borrowers. Geithner said administration officials will work with lawmakers on ways to fund mortgage loans, perhaps by “developing a legislative framework for a covered bond market.”
The Treasury secretary today reiterated that the Obama administration is “fully committed” to ensuring Washington- based Fannie Mae and Freddie Mac of McLean, Virginia, can meet debts, retain staff and fulfill guarantee obligations.
The companies’ cost to taxpayers is declining, Geithner said. “The loss estimates are coming down,” and are projected to decline to about $73 billion by 2021, according to budget estimates. That projection doesn’t take into account higher guarantee fees the Treasury is seeking.
President Barack Obama’s 2012 budget estimates predicted that taxpayer aid to Fannie Mae and Freddie Mac could total $224 billion by the end of 2012, of which $55 billion will be returned in dividends.
Fannie Mae and Freddie Mac requested another $3.1 billion in government aid when they reported quarterly earnings last week.
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