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White House to open a public debate on housing finance reform

By Zachary A. Goldfarb
Tuesday, March 23, 2010

The Obama administration plans to begin a public debate next month on how best to overhaul Fannie Mae, Freddie Mac and the nation's housing finance system.

Officials say they will proceed with reform based, in part, on the principles that borrowers should be able to get home loans even during periods of economic distress and that low-income people should not be excluded from financing to buy homes.

Treasury Secretary Timothy F. Geithner is scheduled to tell the House Financial Services Committee on Tuesday that the administration will unveil a list of questions on April 15 in an effort to frame the debate. The answers will help guide the administration's reform of federal housing policy and address not only Fannie Mae of the District and Freddie Mac of McLean but also the Federal Housing Administration and related agencies.

But before that process gets underway, Geithner's prepared testimony shows that the administration has come up with several basic principles. Among those are that consumers must have access to 30-year mortgages that are easy to understand and that the new finance system not pose risks to the entire financial system, according to his testimony.

Geithner will also make it clear that Fannie Mae and Freddie Mac will not return to being shareholder-owned companies with an implicit government guarantee. The government seized the firms in 2008 to save them from collapse, which could have staggered the global financial system.

"After reform, the [companies] will not exist in the same form as they did in the past," Geithner is slated to say. "Private gains will no longer be subsidized by public losses, capital and underwriting standards will be appropriate, consumer protection will be strengthened, and excessive risk-taking will be restrained."

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