‘The housing finance system cannot continue to operate as it has in the past,’ Treasury Secretary Tim Geithner told the House Financial Services Committee Tuesday.
Geithner, called to testify a day after the Senate Banking Committee approved sweeping Wall Street reforms, indicated that a makeover of Fannie Mae and Freddie Mac is on the Obama administration's agenda. However, he added that any restructuring of the government-sponsored enterprises (GSEs) must be done as a part of a reform of the wider housing finance system.
The GSEs' combination of private ownership and implicit government support, which Geithner called "unhealthy," proved to be a mistake, he said.
Congressional Republicans have accused the administration of dragging its feet in regard to the GSEs, while moving too fast on broader financial market legislation. Republicans in both the Senate and the House have sharpened their focus on the GSEs ever since the Treasury decided late last year to lift the combined $400 billion cap on federal support for Fannie and Freddie.
Geithner, who had previously said GSE reform would not happen until next year, told lawmakers Tuesday that the administration plans to develop a reform proposal for delivery to Congress. As part of the process, the Treasury and the Department of Housing and Urban Development will submit a list of questions by April 15 for public comment.
"Realistically, it's going to take several months to try to shape legislation that can command consensus," Geithner said, according to a Politico report. "I don't see why this should take years."
Geithner's prepared remarks spoke vaguely of the administration's objectives for housing finance reform, mentioning widely available mortgage credit, consumer protection, affordable housing options and financial stability.
"The mortgage finance system should not contribute to systemic risk or overly increase interconnectedness from the failure of any one institution," Geithner said.
The ranking Republican on the committee, Rep. Spencer Bachus, R-Ala., expressed disappointment that the Treasury's proposals for GSE reforms are still in the early stages.
"It's unacceptable that, more than 18 months after the GSEs were placed in conservatorship, the Treasury Department still does not have a plan for Fannie and Freddie," Bachus said, according to a Politico report.
Others, however, cautioned lawmakers that moving too fast on the GSEs could put the housing market's nascent recovery at risk.
‘The housing recovery is still too fragile for the government to completely step away, and any disruption in the marketplace now by doing something too radical would be harmful,’ testified Vince Malta, the vice president at National Association of Realtors.
Last year, approximately 95% of new single-family originations had some form of government support, Geithner said. Fannie Mae and Freddie Mac financed or guaranteed over 70% of last year's new single-family originations, with the Federal Housing Administration, the Department of Veterans Affairs and the Department of Agriculture accounting for 25%.