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U.S. role at heart of housing debate

Treasury Secretary Timothy F. Geithner, left, talks with John Taylor, chief executive of the National Community Reinvestment Coalition, during the Future of Housing Finance symposium in Washington.
Treasury Secretary Timothy F. Geithner, left, talks with John Taylor, chief executive of the National Community Reinvestment Coalition, during the Future of Housing Finance symposium in Washington. (Andrew Harrer/bloomberg News)

The system worked until the companies bought too many bad loans during the recent housing bubble. When the housing market took a nose dive. The companies collapsed into the arms of the federal government, which has pumped in about $150 billion to keep them afloat.

The administration is now trying to recreate what was good about Fannie and Freddie without returning to what was overly risky. An emerging consensus, including among many of the panelists at the conference, favors maintaining Fannie and Freddie -- or several similar entities -- as heavily regulated companies that offer a guarantee to investors in high-quality mortgage loans. The federal government would stand behind that guarantee.

Under this scenario, the companies would charge mortgage originators a fee for the guarantee and use some of the money to cover mortgage investments that go bad. Part of the fee would be contributed to a separate insurance fund that would be tapped if one of the companies fails and can no longer stand behind the mortgage investments it guaranteed. Investors, the thinking goes, would remain confident in the mortgage securities and continue to buy them.

But the task would not be easy. For starters, it will take years for the government to absorb the hundreds of billions of dollars in bad loans Fannie and Freddie already guarantee.

The administration is required under the new financial overhaul law to present a plan for the future of housing policy by January.

The conference also highlighted the greater emphasis the administration is putting on rental housing

"It means ensuring that financing is available for those who will build the rental housing that we need to provide choices for those families for whom homeownership may not be the best option, " Donovan said.


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