Mortgage finance giants Fannie Mae and Freddie Mac need to retain some level of government support but the U.S. housing finance system should not be fully nationalized, Treasury Secretary Timothy Geithner says.
Geithner told lawmakers the central role the housing sector plays in the U.S. economy and its vulnerability to financial shocks justified a degree of government backing.
His comments on Tuesday followed a call by Republican lawmakers to phase out the two Government Sponsored Enterprises and replace them with a housing finance market where private capital is the primary source of funding.
"I think there's likely to be a good public policy case, good economic case ... for the design of a carefully calibrated guarantee appropriately priced that would continue in some form," he told the House Financial Services Committee.
The panel, chaired by Rep. Barney Frank, is looking at ways to improve the mortgage finance companies seized by the government at the height of the financial crisis in 2008 as their losses on bad loans mounted.
The public bailout was supposed to buy time for policymakers to figure out what to do with the two entities.
Fannie Mae and Freddie Mac own or guarantee about half of all U.S. mortgages and are critical to the housing sector and the entire U.S. economy.
In the year and a half since the firms were placed under government control, the Obama administration has been relatively mum on its plans for the future.
Geithner laid out broad principles for reform and said the administration would eventually propose a "comprehensive" plan to overhaul the housing finance system.
"I suspect we are going to find very strong support for reform," he said. "The challenge is going to be just to design something that we think is going to work better in the future."
The hearing marks a first step in what is expected to be a long debate on how best to build a system to ensure a liquid source of home mortgage finance.
"We have two jobs here today. One is to figure out the best way to wind down Fannie Mae and Freddie Mac. But an equally important job is to decide what goes in their place," committee chairman Rep. Barney Frank said.
"You can't really tear down the old jail until you've built the new one."
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